There will be major changes to the tax rule for gains made from the sale of residential properties which will take effect from April 2020.
At present capital gains made by individuals are reported through self assessment, i.e if you sell a property between 6 April 2019 and 5th April 2020 you must declare it on your tax return and pay the tax you owe no later than 31st January 2021.
The new rules will come into affect for 2020/2021 onwards. Meaning that the tax payable on certain types of gains will be due up to 21 months sooner.
This means that the tax is payable for gains made from the sale of residential property (located inside or outside the UK) on or after 6 April 2020, you will have only 30 days following the completion to submit a provisional calculation of the gains and pay the tax you estimate is due.
You will still be required to declare the gain on your self assessment tax returns. If there is a difference between the estimate and actual tax due this will be due by the usual self assessment deadline.
The rule applies whether or not you’re in the self assessment system. You are not required to register for self assessment just because you’ve made a capital gain. After the tax year in which you made a gain ends you’ll be required to review your provisional calculation and make any changes needed.
Estimating your capital gains tax bill you will need to estimate your taxable income for the year to determine how much capital gains tax is payable at 18% and how much at 25%
When working out the capital gains tax due you can reduce the gain liable to tax by capital losses brought forward from earlier years and also any losses made in the same year.
Another way of reducing the capital gains tax payable is if you are intending to sell assets which will make a loss, ie shares, consider making the transactions before you make a gain reportable under the 30 day rule. This way you can take into account the loss when working out your provisional payment.
The important information to take into account when completing the provision for capital gains tax is that once you have submitted the calculations and paid the tax you will not be allowed to reduce it. If you made a capital loss later in the year and submitted this on your self assessment return or year-end review this will not reduce the tax payable.
HMRC have advised that there will be penalties for errors and failings to meet the 30 day deadline for submitting the report and paying the tax due.