Shrinking time limits for paying capital gains tax on disposal of residential property

The current generous time limit for payment of capital gains tax is a significant cashflow benefit, but that is set to disappear for disposals of residential property.

Under a new scheme, UK residents will have to make a payment on account and submit a return to HM Revenue & Customs within 30 days of disposal of a residential property made from April 2020. The payment will be credited against the taxpayer’s income and capital gains tax liability for that tax year.

Currently UK resident taxpayers must make a return and pay any capital gains tax (CGT) due on a sale or gift of residential property by 31 January following the end of the tax year of disposal. Even with a disposal on 5 April taxpayers have the comparative luxury of ten months to calculate any gain arising and determine whether relief is available.

Anyone disposing of a holiday home or buy to let property will now need to consider, ideally well in advance of completion, what the tax position will be.

Care will also be needed when disposing of the main residence. The reporting requirements will not apply where a gain is not chargeable to CGT by virtue of a relief, so those selling their only or main residence will generally not have to file a return. However, if the principal private residence relief is restricted, for example because of the size of the grounds, or because of periods of absence, the 30 day rule will apply. Almost all disposals of residential property (whether in the UK or abroad) will therefore warrant a review of the tax treatment.

When putting a property up for sale, as well as perhaps giving it a lick of paint or fitting new carpets, considering the tax position on disposal will in future be an important element of the sale process. Vendors will need to pull together relevant information and paperwork so that they can meet this severely contracted reporting and payment window.