April 2020 Changes

Posted 06/12/2019

An announcement in the Autumn Budget 2018 explained that from April 2020, Capital Gains Tax rules would be changing. Before this date, any sales of additional properties, land, shares in businesses or any other large asset disposals would be included on the individuals’ self-assessment tax return. The sale price would have the purchase price and any reliefs deducted from the amount before the calculation applied a personal allowance amount and calculated tax on the remaining amount.

There are two rates of tax that the asset disposal profits will be affected by, depending on whether the individual is a basic rate tax or a higher rate tax payer calculated by all taxable income in a tax year. A basic rate taxpayer will pay tax at 18% of the taxable gains, and higher rate taxpayers will pay 28% tax on the capital gain.

From April 2020, if an individual sells a UK residential property they will be required to send a separate residential property tax return to HMRC and pay any capital gains tax due within 30 days of the sale. This time limit may cause issues and certainly apply pressure to those filling out the returns. In cases where an agent is preparing the return for a client, time will need to be allowed for discussing the return and for the client to give approval to send the documents to HMRC. The return does not need to be submitted if no tax is due, but the calculation will still need to be done to establish the required tax amount.

There are changes coming to the reliefs that can be claimed on capital gains calculations, too. The Private Property Residential (PPR) used to allow for 18 months of occupancy within its calculations but from April 2020 this will drop to 9 months. The lettings relief claim will effectively be removed for most; this claim will only be allowed if the owner occupied the property at the same time the tenant was resident there.

The message that this change is coming needs to be out there. If clients are not informed by the change by their accountant or solicitor or are unaware of the changes if the individual prepares their own tax returns then they would be facing a penalty for late submission and payment. The 30 day deadline may not give an individual enough time to be informed that they should be preparing a property return and to calculate how much they need to be paying, as this calculation would require all income for the year to determine if an individual would be a basic rate or higher rate taxpayer.

Software used to prepare and submit tax returns will need to include an option to create these residential property tax returns, or unrepresented taxpayers completing the property returns will need to be aware of where they can find the online forms on HMRC’s website.

Tags: HMRC, Capital Gains Tax, Tax Returns, Self Assessment Tax, Rental Properties