Huge changes are now in place for any owner who sells a property that is subject to capital gains tax.
This new legislation means that the report must be filed, and the payment on account must be made, within 30 days of the contracts being exchanged!
Find out which properties are subject to these changes, and get more details below.
Can You Be Taxed On A Property You Sell?
If an owner makes a gain on a property which has always been their main or only property – then they can enjoy the income tax free! It is not subject to Capital Gains Tax (CGT).
However, if an owner gains on a residential property which is not their main or only place of residence – then the tax laws are not very favourable. Any gain from this property would be subject to Capital Gains Tax.
And now, from April 2020 the timescale to report gains like this to HMRC has been massively reduced, and the timeframe for paying the tax due is a much smaller window: just 30 days.
What Type Of Residential Property Can Be Taxed In This Way?
Remember – If a property is the owner’s main, or only, residence throughout the period of ownership – then any gains are not taxed!
Of course, sometimes selling a home isn’t as simple as that – sometimes you need to get renters in to cover the final few months, sometimes you own two properties while searching for a buyer for your old home, or perhaps you have a tenant living with you too…
Are these instances where you would be taxed?
Providing the property has been the owners main, or only, property (excluding the final 18 months of ownership) or if a tenant has been living with the owner while they lived there – then these instances are okay too! Any gains would be tax free.
However, where a property has never been the only/main residence, or where relief is not available – a chargeable gain will arise. Properties that usually fall into this category are buy to let or second holiday homes.
Payment & Filing Rules For Before 6th April 2020
If the gain happened before 6th April 2020:
- this must be filed by the 31st Jan in a self assessment return after the end of the tax year to which it relates.
- Everything goes into the same CGT pot – therefore you do not deal with any chargeable residential property gains separately.
However, the rules have massively changed for any gains made after 6th April 2020.
Payment & Filing Rules From 6th April 2020
After 6th April 2020:
The Amount You Need To Pay
- The basic rate limit for gains is £37,500 and will be taxed 18%.
- Anything above £37,500 will be taxed 28%.
When You Need To File & Pay
- A new return must be completed and filed with HMRC within 30 days of the date of disposal (the date you exchange contracts).
- A payment on account of the CGT due must be also paid within 30 days of the disposal (exchange of contract). This is the same date as filing the report.
- Once made the return can be amended within a 12-month window, in respect of events that had arisen at the time.
In order to calculate the payment on account, you are not allowed to take into account any losses within the 30 day window for filing the return and making the payment. A refund for any excess can be claimed once the final self-assessment return has been filed.
Remember a return is only required where a gain is made, not if the property is sold at a loss.
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