Anyone selling a property need to be aware of changes to capital gains tax (CGT) due to come into effect in April of this year, warn tax experts. The changes, which see the deadline for settling CGT due on any gain between the buying and selling price of property reduced from 18 months to 9 months, are likely to particularly effect those with investment properties or second homes. But even standard homeowners selling before buying and stuck in a chain of transactions could be hit by the reduction if the process stretches out for longer than expected.
Until now, anyone buying a new property has had 18 months to sell their existing property before triggering a tax bill. From April that drops to nine months and tax experts have warned that could catch some sellers out. Nimesh Shah of tax consultancy Blick Rothenberg commented:
“Nine months is an incredibly short period. When the government consulted on this matter, many commented that the new rules should not be introduced and the current 18-month time frame was fit for purpose, but they pushed ahead with the change. It feels like another tax change aimed at property to raise revenue for the Treasury.”
The time period between settlement of a property transaction and when CGT must be paid has also been slashed to 30 days. Until now, the deadline was the January 31 date for self-assessment. It hasn’t mattered at what point of the tax year CGT was incurred, as long as a tax return was completed before January 31st. Now property sellers who realise a profit must report the gain and pay the capital gains tax due on it within 30 days.
John Bunker of the Chartered Institute of Taxation comments:
“This is a seismic change for those selling second homes or buy-to-let properties. Rather than thinking about an annual compliance process, property owners will need to have their records up to date in advance of a sale. It is essential that people plan ahead to meet the new 30-day deadline or risk being hit with penalties.”
The changes largely hit those with investment or second properties as private residence relief (PRR) means that homeowners who realise a gain when selling a property lived in as a primary residence are not subject to CGT.
With higher rate income tax payers subject to 28% capital gains tax on the sale of investment properties, or second homes (basic-rate taxpayers pay 18%), it is becoming increasingly popular for properties to instead be held through a limited liability company. This means corporate tax, rather than CGT, is due on any returns realised, after deductible expenses. Corporate tax is currently 19% and is expected to drop to 17% this April, saving higher rate tax payers up to 11% compared to paying CGT.