June 14th 2018 / BY: Wisteria

Further changes to disposals of residential property

April 2015 saw a substantial change in the world of taxation in relation to the disposal of UK residential property with HMRC bringing non-UK resident individuals within the scope of UK Capital Gains Tax (CGT). Although it brought into charge, any capital gains arising from April 2015, it was a large change as there was previously no CGT payable for non-UK residents. Along with this shift in the rule, a new reporting requirement was also introduced with the Non-Resident Capital Gains Tax (NRCGT) forms which were introduced with the rule that these needed to be prepared and filed within 30 days of completion (tax was not due at this point but HMRC insisted that they were notified under this new regime).

Recent consultations launched by HMRC suggest that further changes are to apply from April 2020 onwards.

Previously, if a residential property was disposed of, this would be reported by both the NRCGT requirement above (if you are a non-UK resident) as well as on an annual self-assessment tax return. For UK residents, the NRCGT was not a requirement but the usual declaration on the annual self-assessment tax return was required.

The payment of any tax arising on disposals of residential property would also become due at the same deadline of the self-assessment tax return – i.e. 31st January following the end of the tax year in which the disposal occurred.

However, the current plan from HMRC is that the payment frame (as above) will change from 6 April 2020. Rather than waiting until the 31st January following the end of the tax year in which the disposal occurred, HMRC have proposed that the relevant CGT arising on a disposal to be paid within 30 days of completion. Not only this, but the seller will also be required to submit a ‘payment on account’ return within this 30 day period. This significantly shortens the period in which an individual needs to settle the tax because previously they could have had well over a year to wait before settling the tax due.

It would appear that non-residents would also still be required to file the NRCGT as implemented from April 2015 onwards.

The new proposals would only affect additional / second properties and also rental properties. These would also include any overseas properties that are disposed of. No reporting would be required if the property being disposed of is your main residence and is covered by the main residence relief (formerly PPR).

The main driving force behind this would appear to be in line with HMRCs mission to shift to a system of more ‘real time’ information and collecting the taxes due to them sooner rather than later.

Although it is a possibility that this will be implemented, the finer details as to how this will work still need to be confirmed and ironed out by HMRC as it the amount of tax payable on a disposal of a 2nd property can largely depend on either the other total income earned in that tax year, as well as whether or not other properties / assets have been sold at a gain / loss.

As this is complex area and further updates expected to be issued by HMRC in due course, should you wish to find out more regarding these proposed changes, as well as how these might affect you going forward, then please feel free to contact one of our property taxation specialists on 020 8429 9245.