Are you selling residential properties in 2020?
There are proposed new changes to declaring capital gain on residential property sold from April 2020.
These changes will be very massive and would affect individuals selling residential properties.
Who will be affected when selling residential properties?
People affected by these changes include individual taxpayers, not companies disposing of their:
- Second Homes.
- Overseas house and flat
- Higgins style off-plan purchase plus subsequent sales
- Taxpayers disposing of their homes where full principal property relief is not due
- Taxpayers selling their houses do not qualify for full principal property relief or letting relief.
Currently what happens when you sell your house?
When an individual sells a house, it’s a chargeable event to capital gain tax.
What that means is that you will have to declare this on your self-assessment returns for the tax year the house was sold. The tax declaration and payment will also be due by the 31st of January after the end of the tax year the house is sold. Therefore giving enough time for the taxpayer to pay for the tax due.
If the house was owned by more than one person they would have to declare this separately declaring their own share of profit.
What’s been declared or taxable when residential properties are sold?
The main interest to HMRC is the profit from the sale of the house because it’s based on this profit that your tax is applicable one.
The profit is derived from sales proceed deducted from the cost of sales such as agency fees accountants fees etc.
Also, the cost of purchasing the houses and other costs associated when bought.
Tax Relief that can be claimed.
There are various reliefs that can be claimed to reduce the tax due to HMRC.
Principal property relief
This relief is given to taxpayers that sell a property that is their main residence in the UK.
This relief can be 100% is the taxpayer has resided in the property all through the ownership.
They could also claim partly some of the periods lived in the house or some period that is exempted.
This relief can be claimed by taxpayers that sell their properties that they use as letting properties.
The main reason they can claim this relief is that that property has been used as their main residence at some point during their ownership.
This relief is based on the number of the month the property has been let however it would be the highest of the letting relief, the principal relief or maximum of £40,000.
Annual exemption amount
Every tax payers can claim certain amount as tax relief on capital disposal.
The annual allowance for 2019/20, the relief is £12,000.
Changes to declaring Capital gain tax from April 2020.
From April 2020, individual taxpayers will have to declare their disposal in properties within 30 days of disposal and also pay the capital gain tax due.
This means for every disposal, there will be a capital gain tax return submission.
This would definitely increase their accountancy and administration costs.
However, the main changes are the tax that is due within 30 day which is a change in the way CGT is paid now.
Currently, CGT is not due until the 31st of January after the end of the tax year of disposing of the property.
The conclusion to selling residential property from April 2020
If there are plans to sell any of the properties mentioned above, it’s advisable to dispose of before the new changes begin in April 2020.
If you would need more support and tax advice with regards to disposing of properties in an efficient way.
kindly call if you would like to book an appointment