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Radical Changes to Tax Payment Date for Residential Property Disposals

5 March 2020
Jan Friend
Accounting & Compliance, Property Investors & Developers

With effect from 6 April 2020, a new tax payment regime came into effect for the disposal of residential property in the UK by individuals. Note that corporate property owners are not affected by the new rules.

Previously all chargeable disposals needed to be included on a self assessment tax return and the tax was payable on 31 January after the end of the tax year of disposal.

From 6 April 2020 for residential property disposals taxpayers need to complete and submit a land return and pay the CGT within 30 days of completion. If you usually submit annual Tax Returns you will need to include the disposal on your self assessment tax return in the usual way, but you will get a credit for the tax already paid.

To show the difference in tax due dates:

Example 1:

A residential property is sold on 30 April 2019. That date falls in the tax year ended 5 April 2020 and so the capital gains tax (CGT) is payable on 31 January 2021 – 21 months after the disposal.

Example 2:

A residential property is sold on 30 April 2020. As that date falls after 6 April 2020 CGT is payable on 30 May 2020 – 1 month after the disposal.

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In many cases the calculation of the capital gain will be straightforward, but the following are examples of complicating factors:

  1. Where you have lived in the property as your only or main residence at some point during ownership.
  2. Where there have been capital improvements to the property during your ownership.
  3. Where you acquired the property by way of inheritance or a gift.
  4. Where you acquired the property before 31 March 1982.
  5. Where your income fluctuates from year to year.

If one or more of these factors applies to you, the calculation of the CGT due will be more complicated and might result in an overpayment or underpayment of tax on the land return.

Where you underpay the difference will be collected through your self assessment tax return, although there could be interest and penalties if the original figures submitted are wilfully or carelessly incorrect.

If you overpay the overpayment will be refunded through your self assessment return, but this could be over a year after you paid the tax.

To help avoid this situation we have devised a Residential Property Disposal form for you to complete for each residential property that you own.

We recommend you complete the form now and keep it updated when things change – such as when you spend money on improvements. That way when the time comes to sell or gift the property it will be easier to prepare calculations to include with the land return.

If you have any questions about the new rules or any other property related queries contact Jan Friend.

The content in this blog is correct as at 07/05/2020. See terms and conditions.

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