HMRC is planning to bring in new rules from April 2020. It will require individuals and trustees disposing of a residential property to make a payment on account of Capital Gains Tax within 30 days of completion of the sale.
Capital Gains Tax computations can be complex and it can take time to make an accurate computation of the taxable gain. This means that sellers will have to start gathering information and details of historic costs, or dates of occupation in advance of the sale.
For example, an exchange of contracts for the sale of the house on 15 April 2020 with completion on 15 May 2020 means that the Capital Gains Tax due will need to be paid by 14 June 2020. On the other hand, under the current rules, any Capital Gains Tax due will only need to be paid by 31 January 2021.
This can create complications as many individuals will have no knowledge of the applicable tax rates and it can only be estimated at the time of disposal. Another particular area of concern is the treatment of capital losses.
Under the current proposals, individuals will only be able to take into account of losses which are known about at the time of disposal. If they incur more capital losses later in the same year, then it is likely that the original payment on account of Capital Gains Tax will be found too substantial. They can only reclaim any overpayment until after the tax year has finished.
Individuals who are selling their only or main home should no be affected by the proposed new rules provided that they are entitled to full private residence relief. This exempts them from having to pay Capital Gains Tax upon disposal.