Ryecroft Glenton (RG), the North East advisory firm, is highlighting significant Capital Gains Tax changes from next year, which could leave property owners with a tax bill of several thousand pounds.
The changes will impact homeowners who either delay sale of their existing property when they move into their new home or those who have lived in a property for some time and have also rented it out.
As part of the changes, from April 2020 the Government will cut the grace period afforded to homeowners who move into their new property before they sell their existing home from 18 months to nine months, which could lead to a Capital Gains Tax liability if the first property is not sold by the end of that period.
The Government is also severely restricting ‘letting relief’, which could increase the Capital Gains Tax bill on the sale of a property by up to £22,400. Currently, the relief reduces the Capital Gains Tax payable by a property owner who has lived in the home at some stage and rented it out at other times. However, from April next year, letting relief will only apply if the owner and tenant live in the property at the same time.
Completing the changes, perhaps the most significant, is the major reduction in the timing of Capital Gains Tax payments. From April 2020, the current delay in paying the Capital Gains Tax of between 10 and 22 months after a sale is being cut to less than one month. Sellers of a residential property must advise HMRC of any taxable gain within 30 days of completion and an estimated tax payment must be made within the same timescale.
Claire Charlton, partner and head of Personal Tax at Ryecroft Glenton, said: “These changes come hot on the heels of the introduction of higher rates of Stamp Duty on second properties and the restrictions on tax relief for landlords and will have a further impact on residential property owners.
“The financial implications of these combined new changes could be significant. Taking, for example, a house that is sold for a gain of £100,000 after 20 years of ownership which has been the seller’s main home for eight years and then was let for the next 12 years. The Capital Gains Tax payable if the property is sold before 5 April 2020 would be £225. However, if the sale is delayed until beyond 6 April 2020 there could be tax of up to £12,390 to pay within 30 days of sale.
“Anybody thinking of selling a property in the near future will need to seriously consider these changes as the timing of the sale could be critical.”