Changes in capital gains tax on private residences

Sweeping changes are coming to the reporting and payment of capital gains tax on the sale of private residences; accountants, tax advisers, lawyers, conveyancers and clients all need to be prepared.

From 6 April 2020 when a UK residential property is sold and a capital gains tax liability arises the vendor must file a return and make a payment on account of the tax due within 30 days of completion. This is a huge change to the current reporting requirement which is done via the self-assessment tax return system and allows tax to be paid up to 22 months after the sale has taken place.

The tax due is calculated based on the information available at the time of the disposal, so any losses which have already crystallised may be offset against the gain. Losses which occur after the gain has arisen cannot be offset until the self-assessment return is filed at the end of the tax year, potentially leading to a long wait for a refund of any tax overpaid on account.

Such a short timeframe in which to complete the return also takes little account of the complexity of many calculations. It may take time to establish cost bases for properties which have been owned for a long time and a full fact find will be required where claims for principal private residence relief are in point to verify periods of occupation. Changes to the availability of PPR relief at the same time of the filing changes will only add to the possibility for confusion.

The moral of the story is to make clients aware of changes as soon as possible and encourage them to start collating information as soon as a property is on the market. In addition it should not be forgotten that these rules also apply to disposals of property where no funds change hands such as gifts, or transfers in and out of a trust and so consideration needs to be given at a very early stage as to how any resulting liabilities are to be funded.