Do you own a buy-to-let or an investment residential property? If so, are you aware of the payment changes coming into force very soon in the next tax year, on 5 April 2020, which directly impacts capital gains tax due on your property disposal? 

Read on to learn what you need to do now to avoid unnecessary penalties.

It is important that you work closely with an accountant to understand the new payment changes of the Capital Gains Tax (CGT), especially if you plan to sell your property before 6th April 2020.

Mirandus Accountants are your local accountant and tax advisor and as a chartered tax advisory practice, we are well placed to help with all aspects of capital gains and tax implications on your unique personal circumstances.  Contact us to see how we can help.

Summary of changes to capital gains tax on your buy-to-let or investment property

  • Lettings relief – If you currently rent out a property, which was at one stage your main home, currently up to £40k of any gain you make on the sale of the property is currently tax free.  From 6 April 2020, this very valuable tax relief will no longer apply unless you were also living in the property at the time of renting it out.  You could say then, that this tax relief could be renamed to a ‘lodger relief’.

 

  • Principal Private Residence relief (PPR) – If you plan to sell a buy-to-let or investment property, currently you would qualify for PPR if the property was your main residence in the last 18 months of ownership, which means you would be let off the hook with a capital gains tax bill at the point of sale.  After 6 April 2020 this period becomes 9 months.

 

Both the above changes could have costly implications when your property is  sold.

If you are thinking of selling your property now, you may wish to consider selling before the start of the next tax year not only because of the above two changes, but also for another major change coming into force, directly impacting buy-to-let landlords or those with residential investment properties.

If you plan on selling your buy-to-let or residential investment property after the next tax year, after 6th April 2020, you need to be aware of another major change to the payment terms of your capital gains tax bill, otherwise you could be liable to HMRC penalties.

30 day Deadline

From 6th April 2020, you will only have 30 days following completion of the sale to submit a provisional calculation of the gain and pay the tax that is due.

This means that that with an estimated calculation of your gains in the context of your tax position, you may not have the full picture of your circumstances for the remainder of the particular tax year of sale to know what tax bracket you fall in to.  For example, some sellers will have difficulty determining whether they pay tax at 18% or 28%, as your income may not be clear for the remainder of the tax year, perhaps due to change of jobs, or redundancy, for example.

Furthermore, submitting the provisional calculation and paying your corporation tax bill 30 days immediately after your sale date will bring added pressure, with HMRC penalties imposed if there is any delay.

Mirandus Accountants support landlords and individuals with investment properties with their capital gains tax planning, and as chartered tax advisors, we are aware of the latest tax rules coming ahead so you never pay more tax than you need to.  Contact us to see how we can help you plan now so you are set-up tax efficiently.

If you do not plan now, your CGT bill could rise dramatically

See example below of the impact of three major capital gains tax changes coming in to force on 6 April 2020 – the increased gain, tax and accelerated payment impact is apparent.

Let’s look at an example

A residential property is jointly owned by a couple, which is currently worth £600,000, and was bought ten years ago for £200,000.  The couple plan to sell their property in May 2020, in other words after the new capital gains tax charges take place.  The couple’s property was occupied by themselves in the first four years of ownership  and for the remaining period of ownership they let the property and plan to keep rent the property till point of sale.

See below the difference in the couple’s capital gains tax bill as a result of selling their property after the new capital gains tax changes come into force:

Current Capital Gains Tax Rules New Capital Gains Tax Rules

from 6 April 2020

 Spouse A  Spouse B  Spouse A  Spouse B
 £  £  £  £
Proceeds of the sale  300, 000  300, 000  300, 000  300, 000
Less:
Cost of sale

(i.e. stamp duty)

 100, 000  100, 000  100, 000  100,000
TOTAL GAIN  200, 000  200, 000  200,000  200,000
Exempt Gain from tax:
Period of main residence  80, 000  80, 000  80,000  80,000
Final ownership period  30,000  30,000  15,000  15,000
 110,000  110,000  95,000  95,000
Letting Relief  40,000  40,000 not applicable not applicable
Chargeable Gain  50,000  50,000  105,000  105,000
Annual Exemption  12,000  12,000  12,000  12,000
Gain on which CGT due  38,000  38,000  93,000  93,000
CGT @ 28%  10,640  10,640  26,040  26,040
Due  31/01/2021  31/01/2021 30 days post completion 30 days post completion 

 

The couple’s capital gains tax bill is not only 2 1/2 times larger under the new tax rules, but payment is also due imminently after sale.

Mirandus can help

The actions you need to take now to protect your wealth will depend on your family’s needs for capital and income, as well as your current assets and your intended beneficiaries of your estate. Looking at these in unison in the context of your IHT position requires expert advice, and Mirandus Accountants are here help.

Mirandus Accountants are your local accountants and tax advisors in Farringdon, Holborn, Clerkenwell, Blackfriars, Old Street and also Edinburgh & the Lothians, providing accounting services, tax returns, corporation limited annual accounting and are your trusted tax advisor, providing national and international advice.

You can contact us for a tailored solution to your unique business circumstances.

Whether you are an individual, freelancer, contractor or you run a small or medium sized owner-managed business, sole trader or limited company, we can help to minimise your tax burden with our tax planning and tax advice services.

We strongly recommend you speak with a tax and accounting specialist like Mirandus Accountants, a chartered advisory tax practice, who can provide expert advice for your business and personal tax planning needs.