I wanted to remind landlords and property investors of a legal change that’s probably gone under the radar a little bit, certainly very important for landlords and property investors out there and it’s to do with the changes in the capital gains tax rules which come into effect on the 6th of April next year.
Now, from this date, if capital gains tax is due following the disposal of a residential property, this tax is now payable within 30 days of the completion of that sale. Now failure to pay any capital gains tax liability within that time will result in HMRC imposing interest and potential penalties.
It’s also really important to understand that this actually applies, even if money doesn’t change hands, for example, if a property is transferred into a trust or it’s transferred to a family member, for example.
Now, under the current rules a tax payer would report any capital gains on their self-assessment return. With the resulting tax payable on the 31st of January in the following year. This means that there’s a big difference in time scale. So for example, under the current rules, if landlord sells a buy to let property, for example on the 1st of May 2019, that would have to be reported on the 2019/20 tax return. Which means that the tax will actually be payable by the 31st of January 2021. Under the new rule, that’s payable within 30 days.
So there’s a big, in this example, a big 20 months difference in how quickly that tax needs to be paid. Now obviously, people have various different levels of capital gains tax knowledge. And I sort of feel that the people at the greatest risk are the so-called accidental landlords. Maybe, someone that’s never dealt with capital gains tax before. It’s just a single property transaction. More experienced landlords will have a broader knowledge of how capital gains tax works.
I suppose the important thing is, if you’re planning on selling a second property or buy to let investment in the near future. The timing is very very important. Because that completion date could have a significant effect on your cash flow. So remember the 6th of April 2020. If the completion date is after that date, the new rules do apply. So if in doubt, as usual get some help from a professional tax advisor.
Everybody’s situation’s difference. Capital gains tax may well be not payable, as I said, it depends on the exemptions and your own pertinent situation.