If you are currently a residential landlord, it won’t have escaped your notice that the tax system continues to tighten; reducing overall profitability and increasing the work load. Whether it’s Stamp Duty on a second property, a paucity of financing options or a total planned removal of Lettings Relief, it’s clear that HMRC believe this is a sector that can to be squeezed to maximise tax revenues.
This trend looks set to continue in April 2020 when major changes to the regime for Capital Gains Tax (CGT) are due to come into effect.
These rules do not apply when you sell your main home (Principal Private Residence), but where you let out property or own a second home, capitals gain may occur when the property is disposed of. Currently, any gain or loss is reported on your self- assessment return, which means any such gain made in the year to 5 April 2020 does not need to be reported, or paid for, until 31 January 2021.
From 6 April 2020, however, any such CGT will need to be estimated and paid within 30 days following completion (as much as 21 months earlier than previously!). The gain will still need to be declared on your annual self-assessment and, if the provisional calculation and payment is understated, the difference will be due by the 31 January deadline.
“It’s clear that HMRC believe this is a sector that can to be squeezed to maximise tax revenues.”
A complication is that you will be required to predict your annual taxable income, especially if you make the gain towards the start of the tax year. Your predicted income will determine if the gain will be taxed at 18% or 28%, depending on how much of your basic rate band you will have available for the tax year.
You will be allowed to offset capital losses brought forward before the gain is calculated and the provisional amount paid, but losses made after the return is submitted cannot be offset until the self-assessment return (or year-end review) has been completed and filed with HMRC.
If you are not in the self-assessment system at present, you will not be required to register just because you make a gain of this sort, but it will still be your responsibility to review the position at the end of the tax year and confirm that the correct amount of tax has been paid. As ever, HMRC will apply penalties for incorrect or late reporting.
If you feel this is not something you will be able to complete yourself, then you will need to liaise with your conveyancing solicitor to determine if you should appoint an accountant to assist with preparing the return. As this change coincides with the cuts in certain other reliefs, many more individuals could be caught by CGT and will have to consider this very tight reporting requirement.