From April 6, anyone who disposes of a residential property giving rise to a capital gain on which CGT is payable will be required to make a digital return to HMRC and to pay an estimate of the CGT due within 30 days from the sale completing.
People will also no longer be able to benefit from a possibly substantial sum of money remaining in their hands for up to 22 months after residential property disposal.
Imogen, a consultant in Clarke Willmott’s Taunton private capital team, says: “This is a very big change and could easily catch people out. Interest on the unpaid tax and other financial penalties will be due if the rules are not followed. The risk of such a tight turnaround is people being unaware of the changes and failing to comply. They need to be aware of the vastly reduced time limits and to be ready to make the return and estimate the CGT due.
“CGT computations are not always straightforward which could mean that if people are not prepared, they might not be able to collate the information necessary to make the CGT calculation in time.”
The changes will potentially affect owners of holiday homes, buy-to-let properties, main residences which have been let out at some point, owners of homes with grounds in excess of half a hectare, and owners of houses which have been partly used for business purposes.
Imogen says the changes will not generally apply on the sale of a person’s main residence but will be relevant on the sale of second homes, and where the main residence exemption does not apply for any reason.
“Gains are not always straightforward to calculate – if an owner has made improvements to the property the cost of these will be deductible from the capital gain, but if there have been numerous improvements over many years it may be challenging for the client to find all the supporting documentation.”
Imogen urges property owners to make an early start of compiling the required information and to start thinking about the CGT position as soon as the property goes on the market.
CGT is calculated by treating the gain as the highest amount of the owner’s income during the tax year in question and therefore clients will need to estimate their income during the tax year of disposal as this will impact on the CGT rate applicable to the gain.
Personal representatives and trustees, as well as individuals, will be required to comply with the new rules. Meanwhile, gifts of properties also give rise to a disposal for CGT purposes triggering the new requirements.
John Bunker, chair of Chartered Institute of Taxation’s private client UK committee, has branded the new reduced deadline as “a seismic change”.
