In the current COVID-19 climate, it is easy to overlook other changes taking place. New taxation rules for the disposal of residential property came into effect on 6 April 2020. If you are the owner of a landed estate and plan to sell a property in the future, then you should be aware of these changes.
Before 6 April 2020, where a property forming part of an estate was sold, resulting in a gain triggering a Capital Gains Tax (CGT) liability, the individuals or trustees who manage the estate had a long deadline for reporting and making payment of the tax to HMRC. This deadline was 31 January following the end of the tax year of the disposal of the property, which meant that there could be a period of up to 21 months before payment was due.
A property sold in the second week of April 2017 would be reported in a tax return for the tax year ending 5 April 2018. Submission of the report and payment would not be needed until 31 January of the following year, 2019.
30-day deadline for CGT returns and payment
These rules have now changed. For UK residents who make disposals of UK residential property from 6 April 2020, a return and payment of CGT is due within 30 days of "completion" of the sale. Completion refers to the conclusion of missives, not final settlement, so it is possible the seller may need to pay the tax before receiving any settlement funds.
This new rule equally applies to gifts as well as sales, so could still be triggered by the gift of a residential property to a family member, for example. Gifts of property into a trust, however, may qualify for hold-over relief.
This new deadline means that if you own a landed estate and are disposing of residential property that triggers a CGT liability, you will have the considerably shorter timeframe of 30 days in which both to report, and make payment of the tax.
Reduced periods for Principal Private Residence and Lettings Reliefs
A further change to the taxation rules that applies from 6 April 2020 relates to Principal Private Residence Relief (PRR).
This relief applies where an estate owner occupies a property on the estate as their main residence and has done so constantly throughout their ownership. Any gain made on disposal of the property would not trigger a CGT liability (as it would for any gain during periods of non-occupation). It is instead covered by PRR. In such a case, no return needs to be submitted or payment made.
Where the owner has occupied the property as their main residence at some stage, a final period of ownership always qualifies for this relief, regardless of how the property is used at other times during ownership. This period of deemed occupation was formerly 18 months to benefit from PPR relief. The purpose is to give individuals a CGT-free period in which to sell a property once they have given up occupation. The change now made to PRR is a reduction of the final period from 18 months to just nine months. This means that an estate owner only has up to nine months before the property is no longer treated as "deemed occupied" before CGT applies.
There has also been a change to the relief available where the estate owner’s main residence has been let at some point during the period of ownership but is now being sold or transferred in some way. The relief covers up to a maximum of £40,000 of any gain attributable to the rental period. From 6 April 2020, lettings relief now only applies where the owner lived alongside their tenants during the periods of let, which will mean that many instances of letting will no longer be covered.
These changes will mean that many more owners of landed estates who are selling property will have to file returns and pay CGT on account. They will also have a much shorter timeframe in which to do so, with the introduction of the 30-day period for returns and payment.
We are happy to assist and advise you on queries in relation to your CGT liability on sale of a residential property as a result of these changes.