Important message for those selling or gifting UK residential properties

An important change came into effect on 6th April 2020 which will affect everyone who makes a sale or gift of UK residential property, other than their own main residence, on or after that date. This change may have got lost in the fog surrounding the impact of the coronavirus, and the fact that there are fewer property sales progressing to completion at this time..

If you sell or gift UK residential property on which main residence relief is not available, a return will need to be submitted to HMRC, and the CGT paid, within 30 days of the completion date for the sale. Penalties for late submission will be applied if the deadline is missed, and interest will be charged on late payment. This change affects both UK landlords and non-resident landlords, although non-resident landlords have been have been subject to the 30 day reporting rule since 2015.

If there is a loss, or a no gain/no loss situation, a return will not need to be made.

It remains to be seen whether solicitors will make the return, and retain the money to pay the CGT, but it is likely that they will need to liaise with accountants/tax advisers over the calculation over the gain, so that any available reliefs can be considered. We are not only keen to help all our clients make the reports on time, but would encourage potential sellers to contact us before a sale takes place to make sure that the sale is being organised in the most tax-efficient way.

In addition to the report mentioned above, the gain will still need to be reported on the taxpayers Self Assessment Tax Return as well.

STOP PRESS – we have just heard that HMRC have extended an important deadline of this scheme, due to the impact of the coronavirus. There will now be no penalties for late submission of reports of properties sold in the period from 6th April 2020 to 30th June 2020 provided the reports are submitted by 31st July 2020. Interest will still be charged on the late payment of CGT if it is not paid within the 30 day deadline though!

Charges to paying CGT on residential property from 6 April

From 6 April 2020 there is a major change in the reporting and payment of CGT on residential property disposals. From that date, it will be necessary to report the disposal of the property within 30 days of completion of the disposal and pay CGT on account to HMRC.

This will be a significant acceleration of the payment date as CGT is currently payable with income tax on 31 January following the end of the tax year. Hence, where completion of a property disposal takes place on 1 April 2020 CGT will be due 31 January 2021. If however completion were delayed to 1 May 2020, CGT would need to be paid on 31 May 2020.

Note that the new 30-day reporting and payment obligation will not apply where no tax is payable such as the disposal of the taxpayers private residence.

If you would like any further information or would like to discuss the above changes please call Richard Grayson on 01522 815100.

Another reason to sell property before 6 April 2020

If the draft legislation issued for consultation last year is enacted in the next Finance Act there will be important changes to private residence relief for disposals after 5 April 2020.

Firstly, the exemption for the final period of ownership will be reduced from 18 months to 9 months. This applies where a former main residence is disposed of and is intended to give relief where the owner has moved to another main residence until the former residence is sold i.e. “bridging”. Note that for many years this additional allowance was 36 months that led to a tax planning strategy referred to as “second home flipping” which HMRC are seeking to counteract.

The second change will be the abolition of letting relief except for situations where the taxpayer lives with the tenant. This generous relief currently provides an exemption of up to £40,000 per owner where the former main residence is rented out.

As a result of these two proposed changes you might want to consider disposing of a property before 6 April 2020 if you were planning to take advantage of these CGT reliefs.

If you would like more information please call Richard Grayson on 01522 815100


No capital allowances for equipment in a “Dwelling House”

As a general rule, there are no capital allowances available for expenditure on plant and machinery in a dwelling house.

In a recent Tax Tribunal case it was decided that only equipment installed in the “common parts” of a dwelling house qualifies for tax relief. This would typically comprise a common entrance lobby, corridors, stairs or lifts and those parts of the building which do not provide any living facilities.

A major exception to this rule is where the property qualifies as furnished holiday lettings where the business is treated as if it is a trade. Consequently, assets such as beds, sofas, televisions and white goods would qualify for capital allowances as plant and machinery in such a business.

Note also that the new Structures and Buildings Allowance is not available in respect of “dwellings” nor structures in the garden such as a garden office.

Tax update – passing on the family home

The Labour party were proposing to reverse the recent Tory party inheritance tax cuts if elected. They were referring to the additional nil rate band for passing on the family home. This additional relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure your Will is tax efficient.

When fully phased in from April 2020, an additional nil rate band of up to £175,000 is available on death where your residence is left to direct descendants.

This is on top of the normal £325,000 nil rate band.

The residence nil rate band is however restricted if your assets exceed £2 million. The rules are fairly complicated but we can review your personal circumstances to enable you to take advantage of all the relief that you are entitled to.

Note that the additional inheritance tax relief is available even when you downsize to a smaller property or move into care, provided assets of equivalent value are left to direct descendants in your Will.

If you would like more help or information on the above contact Richard Grayson on 01522 815100.


Furnished holiday lettings businesses also qualify for Capital Gains Tax Relief

As mentioned above furnished holiday lettings businesses are eligible for capital allowances on equipment in the property. Where the business incurs finance costs such as mortgage interest the restriction that applies to other residential property businesses does not apply to furnished holiday lettings.

It should also be noted that qualifying furnished holiday lettings businesses are eligible for a number of important reliefs from capital gains tax. “Rollover” relief would apply where the proceeds of sale of a property are reinvested in another qualifying asset and it is also possible to claim holdover relief on the gift of the whole or part of property business. Note also that entrepreneurs’ relief would be available on the disposal of the furnished holiday lettings business.

As mentioned in a previous newsletter the Office of Tax Simplification have recommended that furnished holiday lettings businesses should qualify for inheritance tax (IHT) business property relief which, if legislated, should mean no IHT payable when the business is passed on during lifetime or on death.

Want to know more about the tax reliefs available then call a member of our team on 01522 815100.