What is Capital Gains Tax?
Capital Gains Tax has seen many changes over the years, especially for residential property. If you are a UK resident and you are selling your residential property on or after 6th April 2020, any Capital Gains Tax due had to be calculated and paid to HMRC within 30 days of the sale. With the latest budget on the 27 October 2021, we have seen this change to 60 days on all properties sold after the 27 October 2021.
For the majority of property sales there are no Capital Gains Tax (CGT) mainly due to Private Residence Relief which applies to the sale of family homes. But for those properties which have been held as investment properties – or was once a family home which was kept and used at an investment property, new rules will apply.
What are the new rules on Capital Gains Tax?
Since last year, the pressure is on to work out the Capital Gain and send in a ‘Residential Property Return’, PLUS any tax due, within 30 days of a sale (60 Days on properties sold after 27 October 2021). If no tax is due, then the rule is not relevant.
A couple purchases a property on 1 April 2001 for £100,000 in which they live in for 10 years and then continue rent it out until this is sold on 31 March 2021 for £300,000, the gain is calculated as follows:
Proceeds of sales – £300,000
Cost of Purchase – £100,000
Total Gain – £200,000
PPR – 10/20 (£100,000)
Final 9 Months due to PPR (£ 3,750)
Net Gain £96,250
Total gain reportable for each Partner:
Partner Share of the gain £48,125
Annual exemption (£12,300)
Gain £35,825 @ 18% = £6,449
Payable by 30th April 2021
** This assumes both partners have enough basic rate band to cover the gain. However, if the gain takes you above the basic rate band then some or all will be taxed at 28%
The above payment on the 30th April 2021, is effectively a payment on account of Capital Gains Tax – and the final amount owed or repayable will be calculated within the normal Self-Assessment Tax Return.
This a huge change from the current rules under which any CGT on gains made in the year ended 5th April would be due by the following 31st January.
So, it may well be the case that CGT is payable on selling a property within 30 days (60 Days on properties sold after 27 October 2021). – under the new rules, but if you have a loss on (for example) the sale of shares in the year or losses which have been carried forward from previous years, would lead to some or all of the CGT already paid being refunded once the year’s Self-Assessment Tax Return has been submitted.
Continuing from above, the shares which are jointly owned make a total loss of £50,000, which is then offset against the above gain in the tax return, meaning a refund of capital gains tax would be due for both partners of the following:
£25,000 @ 18% = £4,500
This should be refunded once the tax return has been filed.
It is important that anyone likely to be affected by the new rules contact their accountant before any sale is made.
There will be late filing penalties and Interest when either the Return is made, or the tax is paid, later than 30 days (60 Days on properties sold after 27 October 2021).
If you have any questions about the new Capital Gains Tax rules, please contact us.