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Understanding The Capital Gains Tax Changes

The 2020-21 tax year will have significant tax changes for second property owners and property investors. With the new 30-day Capital Gains Tax (CGT) payment window being unaffected by the recent Government announcements on COVID-19, it is important that all property tax compliance rules are followed to avoid additional costs.

As discussed in our previous article, from 6 April 2020, individuals who sell a property, apart from their principal residence, will have to pay CGT within 30 days instead of the previous 22-month period.

This will affect divorcing spouses giving property to each other and individuals giving property away as under these circumstances, there will be no sale proceeds to pay the CGT. It is therefore crucial that individuals ensure that they are in a position to pay the CGT liability prior to giving the property away.

The 2020/21 CGT rates on the sale of residential property are 18% for basic rate taxpayers and 28% for higher rate taxpayers and the allowance for 2020/21 is £12,300 for individuals and representatives, and £6,150 for trustees of settlements.

Any late payment of CGT will leave individuals facing an immediate £100 fine from HMRC, plus an additional £10 a day up to £900. If still unpaid after six months, the liability increases to 5% of the tax due or £300, whichever figure is greater.

How to report and pay the tax

First, you’ll need your Government Gateway user ID and password or create a user ID if you haven’t previously set up a Government Gateway account. You then need to create a ‘Capital Gains Tax on UK property’ account before you can report and pay your tax. We can act on your behalf once authorised, submitting this information using our Agent account.

If you are non-resident, you must report all sales or disposals of UK property, even if you have no tax to pay or have made a loss.

To report a disposal, you will need the following details:

  • property address and postcode
  • date you got the property
  • date you exchanged contracts when selling or disposing of the property
  • date you stopped being the property owner (completion date)
  • value of the property when you got it
  • value of property when you disposed of it
  • any costs of buying, selling or capital improvements to the property
  • details of any tax reliefs, allowances or exemptions you are entitled to claim
  • property type, if you are non-resident
  • property value on 31 March 1982 (known as ‘rebasing’) if you were UK resident at the time of the disposal and owned the property on or before 31 March 1982
  • property value on 5 April 2019 (known as ‘rebasing’) if you were non-resident at the time of the disposal and owned the property on or before 5 April 2019.

Ways to pay

You can pay by bank transfer, debit card or corporate credit card from your bank account.  You will need to provide your payment reference number from your ‘Capital Gains Tax on UK property’ account.

Plan ahead

It is important to speak to your accountant before selling a property so that plans can be put in place to report the disposal, set up your ‘Capital Gains Tax on UK property’ account and gather the necessary information so that the disposal can be reported within 30 days of completion.

Our Property Taxperts are here to guide you through the process of disposing your property. To discuss your own circumstances, please contact a member of our Property Taxperts team or email [email protected].

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