Hot on the heels of the introduction of higher rates of stamp duty on second properties and restrictions on tax relief for landlords, the government has announced another raft of changes which will affect property owners.
Most owner-occupiers do not pay capital gains tax when they sell their main home because of a tax relief which exempts the seller from tax in relation to periods when they lived in the property. There is also a “period of grace” which allows for the situation where a homeowner moves into their new home before they have managed to sell the old one. This period is currently 18 months, but will be cut to 9 months from April 2020. This means that, if you don’t sell your previous home within 9 months of moving into your new home, you may have some capital gains tax to pay.
There will also be changes to “letting relief” which is severely restricted from 6 April 2020. This relief currently reduces the capital gains tax payable by a property owner who has lived in a property themselves at some stage and has rented it out at other times. From April 2020, letting relief will only apply if the owner and tenant live in the property at the same time; this will be rare. Withdrawal of this relief could increase the capital gains tax bill on the sale of a property by up to £22,400.
Perhaps the most significant change is to the timing of capital gains tax payments following the sale of a residential property. At the moment, there is a delay of between 10 and 22 months after a sale before the tax is payable, depending on when in the tax year the sale takes place. For sales of residential property taking place after 6 April 2020, HMRC must be advised of any taxable gain within 30 days of completion and an estimated tax payment must be made within the same timescale.
Taking all of these changes together, the impact could be significant. For example, consider a house which is sold at a gain of £100,000 after 20 years of ownership. It was the seller’s main home for 8 years, then he moved out and let it for the next 12 years. If the property is sold before 5 April 2020, there would be £225 of tax to pay by 31 January 2021, but if the sale is delayed until after 5 April 2020 when the new rules apply, there could be tax of up to £12,390 payable within 30 days of sale.
If you are thinking of selling a property in the near future, the timing could be critical.