Significant changes and modifications to tax relief come into force from 6 April 2020, which will impact those who hold property as an investment. With just over a week until the UK Budget on Wednesday 11th March, and just over a month until the end of the 2019/20 tax year, it is important for property investors to review their affairs and explore possible tax planning opportunities ahead of this date.
By way of a background, the Chancellor announced in the 2018 Autumn Budget provisions for restricting Lettings Relief and reducing the Private Residence Relief final period exemption, which would take effect from April 2020. Also, from 6 April 2020, UK residential property that is subject to Capital Gains Tax will require to be reported and the tax paid within 30 days of the sale.
In the 2018 Budget, the Chancellor included two provisions for changes to Private Residence Reliefs, restricting Lettings Relief and reducing the Private Residence Relief final period exemption, to take effect from April 2020.
The sale proceeds from selling your main residence are generally not liable to Capital Gains Tax, as a main home is not considered by HM Revenue & Customs to be an investment, unlike a Buy to Let property which is let out and an income is received. However, there are time limits on selling your main residence once you have moved out and have a new main residence. The final period exemption currently means people do not have to pay Capital Gains Tax on gains made in the final 18 months of ownership, even if they no longer reside in the property during that period.
The 2018 Budget included measures to reduce the exemption from 18 months down to 9 months as from April 2020.
The special rules that give those in, or moving into, care homes, and people with a disability, 36 months of final period exemption will not change.
Lettings Relief currently provides up to £40,000 of relief (£80,000 for a couple) to those who let out a property that is, or has been in the past, their main residence. This means that individuals can claim the relief on a property even if they have not lived in it for some time.
From April 2020 it is proposed the relief will be modified and will only be available to those who lived in the property with the tenant, during the let period.
Where a chargeable gain does occur on the disposal of UK residential property, this is assessed to Capital Gains Tax at either 18% (lower rate) or 28% (higher rate) or possibly a combination of both, depending on the individual’s overall level of income. Individuals are entitled to an Annual Capital Gains Tax exemption which in the current tax year (2019/20) is £12,000. This exemption can be used to offset against any potential gain, provided this exemption has not been used on any other capital disposals in the same tax year.
At the moment, a taxpayer’s Capital Gains Tax liability will be due and payable by 31 January following the end of the tax year in which the disposal took place.
From April 2020, this payment deadline will be restricted and any disposal of UK residential property that is subject to Capital Gains Tax will require to be reported and the tax paid within 30 days of the sale.
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