Under the current self-assessment system, reporting property disposals and paying any resulting capital gains tax (CGT) is not due until the deadline for submitting a self-assessment form. For UK-residents and some non-residents, this can be up to 22 months after the disposal took place, whereas for most non-residents reporting, and settling any CGT due on, UK residential property disposals, this date is 30 days from completion.
With effect from 6 April 2020, disposals of UK residential property on which CGT is due will have to be reported and the tax paid within 30 days of the disposal.
The 30-day period will start from the completion date and not date from the date contracts are exchanged. The vendor will be required to calculate the amount of tax payable on account, taking into consideration unused losses, the person’s annual exempt amount and an appropriate rate of tax after estimating the person’s taxable income for the year. Reconciliations of payments can be made at the end of the tax year.
Certain disposals by UK-residents, will not be subject to the 30-day reporting and payment deadline, including circumstances where a gain on the disposal is not chargeable to CGT, for example where the gains are covered by Principal Private Residence relief (PPR). (Please refer to the article on changes to PP relief)
Non-resident companies who are charged to corporation tax (CT) rather than CGT on disposals of UK residential property interests and so will not be subject to the 30-day period.
This change will mainly affect those UK residents selling a second home or rental property on which PPR is not available. From April 2020, individual’s will need to make a payment within 30 days whilst companies liable to CT will generally be required to pay their liability within 9 months and 1 day following the end of an accounting period. This gives companies a significant cash flow advantage over individuals. This may be another reason for individuals to look at whether they should incorporate their existing residential portfolio.
You therefore need to be aware of these changes and the short window in which to report and pay the tax on disposals. This can no longer be left to the end of the tax year and they will have to ensure advisers are kept up to date with transactions.
If you require further information on the proposed changes or wish to discuss your current position to see if there are any options with regards to UK or overseas properties, then please contact Sue Stephens or John Elliott on 0151 236 1494.