CGT and UK Residential Property

Did you know that there have been some changes to the rules surrounding capital gains tax when you sell your property investment?

I thought it might be useful to summarise how it now works:

When is a gain from CGT taxable?

Unless you dispose of a UK property that benefits from private residence relief, i.e. one that:

• Has been your main residence for the entire term of ownership.
• Have not let out your home (excluding to a lodger).
• Have not used a specific part of it for business purposes only.
• The Grounds and Buildings are less than 5,000 square meters (1.23 acres) in total.
• You did not buy it purely to make again.

Then the gain on that property is subject to CGT. Nothing new here but a useful reminder nonetheless on what exactly is a principle residence in the eyes of HMRC.

Calculation of the gain

Simply put, this is the purchase price deducted from the sale price (or market price). Capital expended on improving an investment property is often allowable, effectively uplifting the cost and reducing the tax.

There may also be some relief available if it was your main residence for part of the period of ownership.

How much tax do you have to pay?

Each individual has an annual CGT allowance (£12,300 – 2020/21), the gain over this amount is subject to tax at 18% (basic rate taxpayer) or 28% (higher rate taxpayer). These rates are currently higher than that which apply for gains on other investments such as that on a portfolio of stocks and bonds.

HMRC are currently undertaking a review of CGT and so it could well be that these rates change in the short term.

When do you have to pay it?

This is the key change which vendors need to be aware of and which may come as a surprise. Whilst your solicitor helping with the property sale should be aware of this, it is a new rule and we just wanted to raise awareness of this new requirement.

From 06 April 2020, any CGT resulting from a sale of a UK residential property must now be paid within 30 calendar days from the date of completion. There is a new online service dedicated to this. You must report the disposal regardless of whether there is any tax to pay.

This is an important change for those who have been accustomed to paying their taxes in January and July.

A good financial plan would make sure that you have some cash set aside for the tax straight away before you begin spending your proceeds!