2020 is seeing a change in how you report and pay capital gains tax to the HMRC. While current capital gains deadlines are declared before the end of one tax year and paid before the end of the following one, new processing times will see 30 days from completion to report and pay your CGT to HMRC. Here are the essential changes you need to know about capital gains tax.
What are the current deadlines for capital gains tax?
At present, anyone completing the sale of a holiday home, secondary residence, letting or inheritance property will need to declare their capital gains to HMRC before 6th April 2020 via self-assessment. The payment of CGT will then be due on or before 31st January 2021 as it would with a regular self-assessment the following tax year.
What will happen after 6th April 2020?
After 6th April 2020, anyone making a capital gain upon the completion of a property sale will need to declare and pay to the HMRC via a new portal within 30 days of completion. If the transaction was completed before the 6th April 2020, then the previous deadlines will apply, and you will have until 31st January 2021 to make the payment. Non-UK residents will also no longer be able to defer Capital Gains Tax on any UK purchased property via self-assessment, and will now also need to pay via the 30-day reporting and payment period.
What is the best way to estimate my capital gains tax?
The HMRC has a capital gains tax calculator to help you work out how to estimate your capital gains tax payment. If the property was a gift or inherited, the market value of the property can help you work out the gain from the sale. You can then deduct the fees for the sale, such as the solicitor and legal fees or any renovations cost, or split the gain between individuals if it was a joint sale to calculate your value. Talk to an accountant like Maple Accountants for more advice if you aren’t sure what the estimated costs should be.
How do I know if I’m exempt from capital gains payments?
If you meet the criteria for Private Residence Relief, you sold the property at a loss, made the sale to a spouse, the gains are within your tax-free allowance or the residence is non-UK, you won’t need to pay capital gains tax. If the property was your home, a business asset or occupied by a dependent (see more on Private Residence Relief), you may also be eligible for relief. You will also be exempt from the new regulations if the sale was completed before 6th April 2020, and therefore follow the current regulations for payment by 31st January 2021.
What are the new penalties for late payment?
There current payment penalties in place for late payment follow below:
- Penalties start from £100 for missing the deadline
- Any late payment for up to 30 days after the deadline at 5%
- After five months a penalty of 5% of the tax outstanding is due
- Up to twelve months late will lead to a 5% penalty of the tax outstanding
- HMRC can also levy a £10 daily penalty for 90 days upon their discretion
These penalties take into account the new deadline of 30 days for declaring capital gains tax from the 6th April 2020.
What does this mean for my capital gains relief after 6th April 2020?
The changes will impact lettings relief and final exemption periods. The current situation up until 6th April 2020 allows the relief to be applied to lettings which you previously lived in as your main residence. So if you are currently letting out a property that you lived in, you would be entitled to relief. After 6th April 2020, you will only be entitled to an exemption if you reside in the same property as your tenant.
Final exemption relief would also apply to a property you used to reside in under the current model. If you reside in the property you are selling for a portion of the ownership, you are exempt from capital gains tax for 18 months. After 6th April 2020, this is reduced to nine months but does not apply to private residence relief.
What is the best way for me to get ahead of the changes?
If you’re not sure about the amount you’re entitled to pay or want to make sure you’re falling under the right exemptions, speak to a trusted accountant like Maple Accountants to make sure you’re submitting your capital gains correctly. Avoid penalties or confusion with an accountant on hand to talk through your needs.