There has been much speculation in the press about potential new tax rises to pay for the Covid 19 crisis. One of the 'favourites' has been a potential increase in the rates of Capital Gains Tax (CGT) paid by investors on profits from the sales of second homes and buy to lets.
CGT is currently charged at lower rates than income tax, and is typically 28% of the 'profit' made on the sale of an investment property. Remember, that your main personal home, or 'Primary Residence' is free from tax and CGT doesn't apply. That seems very unlikely to change.
What isn't so well reported is that there have already been changes to how CGT is collected with a new 30-day Capital Gains Tax (CGT) rule recently coming into force. Since 1 August HMRC has been clamping down on any property owner who hasn’t reported and paid CGT within 30 days of selling a property in the UK in the current tax year (after 6 April 2020).
HMRC has developed a new system for reporting and paying Capital Gains Tax on UK residential property, which means any UK resident disposing of an asset (not just property) that makes a gain which is liable to CGT will have just 30 calendar days from the date of completion (not exchange) to tell HMRC and pay any tax owed. They need to do this using a new online service, the ‘real-time’ Capital Gains Tax service. You cannot wait until your normal self-assessment return. Interest and potential penalities run from the date the tax was due to be reported and paid so it can be an expensive mistake to miss the deadline.
Another point to bear in mind is that it is important to include capital gains on your normal self assessment return filed at a later date, even if you’ve already reported and paid the tax due on them.
So, if you are selling an investment property it's important to be well prepared. You need to make sure you are offsetting all allowable costs and expenses against your capital gain which are different to those which apply to the income from residential lettings. Different rules apply if you hold the property within a limited company where corporation tax rules apply.
Remember the good news, that property held jointly by individuals or by husband and wife investors, qualifies for two slugs of capital gains allowance which substantially reduces the potential tax bill.
If you are a landlord or investor, feel free to ask us for advice about your options and for an up-to-date valuation of your property assets.
We work with one of the largest firms of accountants on the Island to help our clients manage their affairs in a tax efficient way and it's never been more important to have the right professional advice at the right time. Timing of sales can be just as important as getting the very best price.
Please give us a call on 01983 525710 or drop us an email. We will be happy to help you evaluate your options.