The Team

New Capital Gains Tax Rules for residential property
01/03/2020
New Capital Gains Tax Rules for residential property

New Capital Gains Tax rules in relation to the disposal of buy to let properties and second homes come into effect on 6 April 2020. The introduction of these rules indicates that the amount of Capital Gains Tax you’ll pay on disposal will increase.
 

These changes focus on reliefs that are currently available to owners of buy to let properties and second homes. The rules do not apply to your own main residence.
 

The main changes revolve around how you report the Capital Gain and pay Capital Gains Tax, Principal Private Residence status and Lettings Relief.
 

Reporting your Capital Gain and paying the Capital Gains Tax
 

When these changes come into place, you must report and pay the estimated capital gain within 30 days of the disposal of the residential property. Before this came into place, any Capital Gain was reported through your normal tax return. That meant that the Capital Gains Tax was paid in the January following the submission. That meant there was a delay between the date of submission of your tax return and payment of the gain.
 

Two rates of Capital Gains Tax apply when you dispose of a residential property. The rate depends on your tax status. If you are a basic rate taxpayer, the rate is 18% of the gain.  If you are a higher rate taxpayer, the rate payable is 28% of the gain.
 

Principal private residence status
 

If the property you’re selling was once your main residence, the current rules mean that the last 18 months of ownership is treated as qualifying as principal private residence period.  That means it’s exempt from tax. From 6 April 2020, that period is now reduced to 9 months.
 

Lettings Relief
 

This relief applies if, at some point during your ownership, the property was your main residence and there was also a period in which it was let. In those circumstances, there is potential Capital Gains Tax relief of up to £40,000 of any gain and where the property is owned by more than one person, each person has the £40,000 allowance. This changes from 6 April 2020 when this relief will only apply if the letting occurred whilst the owner or owners lived in the property.
 

You still have some time left to mitigate the effect of these changes.
 

If you own any buy to let property or a second home and would like some advice on how you might be able to mitigate the Capital Gains Tax liability, you need to act now. If you need any help or advice, please get in touch.