HMRC have introduced significant changes to the way that the disposal of your home (main residence) is taxed from 6 April 2020 onwards.
Unfortunately for those who have multiple properties or have let out their homes this will have a significant negative effect on the sale, with a number of generous reliefs being removed or limited, along with the timescales for payment being reduced.
There will be three significant changes to the current legislation:
Lettings Relief
- Currently if you let your main residence at any point during your ownership there is an additional relief of up to £40,000 of any gains, which is worth around £11,200. Where the property is jointly owned, each owner would receive the £40,000 relief, potentially saving £22,400 if they are both higher rate taxpayers.
- From April 2020 you will only benefit from this relief if you share occupation with the tenants (ie let rooms while you still live in the property).
Principal Private Residence Relief
- Currently where a property has been a main residence the last 18 months of ownership is exempt from capital gains tax.
- From 6 April 2020 this period is reduced to nine months.
CGT Payment dates
- Currently where a property is disposed of this is reported on your tax return for the year and due by 31 January after the end of the tax year in which the disposal is made. So tax on a property disposed of on 10th April 2019 will be due on 31 January 2021.
- From April 2020 a CGT return will need to be filed with HMRC and tax estimated and paid within 30 days. The gain is then reported again on the tax return and the tax due adjusted if incorrect (for example if tax was paid at 28% but some of the gain was taxable at 18%). This means that tax on a disposal on 10 April 2020 is due by 10 May 2020, 8 months earlier than a disposal a year before.
If you are thinking of selling or gifting a property, we can assist you with calculating the costs of doing so pre or post-April 2020 and where there is any scope to mitigate the tax changes.