The Courier & Advertiser (Angus and Dundee)
Carry out review of all your assets
New rules tightening the deadline for payments of Capital Gains Tax (CGT) on residential property came into effect in April. Now, a seller must pay CGT, if due, and file a return within 30 days of completion on a sale. The chancellor has also ordered a full review of CGT rules which serves as an indication that there are more changes to come.
If you were planning on making changes to your asset base, now could be a good time to get things started, as it’s unlikely CGT will remain at its current low rate.
Let’s tackle the reporting changes first. From April 6 2020, if CGT is due, a return must be submitted to HMRC, with an estimate of the amount due, and payment made within 30 days of completion.
If the tax ultimately owed differs from the estimate, the balance will be due or refunded following the submission of the annual tax return.
The new deadline for CGT payments even applies when a property is transferred into a trust or gifted to a family member. These two are disposals and so you need to consider how to manage payment of CGT, if due, within 30 days. This makes it important to work with your accountant to help plan any changes you are considering to your asset base.
Most people don’t pay CGT on the sale of their main residential home because of a very valuable relief called Principal Private Residence (PPR) Relief. Meaning, if you occupy the house you are selling as your main residence, no CGT will be owed. So, CGT usually only kicks in on the sale of a second home or if you have not occupied your main residence for the entire period of ownership, perhaps due to working elsewhere.
Many farmers and landowners may have more than one residential property on their land; they may live in the main farmhouse and have other farm cottages where other family members live, or that they rent out. If any of the cottages were sold, PPR relief would not be available as it’s not the main residence of the owner, so this is where CGT could arise for payment.
What’s next for CGT? Well, with UK borrowing at record levels and tax revenues down, there has been speculation that tax rises are looming to help plug the UK deficit. CGT rates are historically low, so it is not outwith the realms of possibility that we could see CGT rates brought more into line with income tax rates. PPR relief may also find itself up for review, given it costs the government more than £27 billion per year (2018/2019). With the government incentivising people to buy property at the moment with the temporary reduction in Stamp Duty Land Tax (SDLT) and Land and Buildings Transaction Tax (LBTT), we could see a tax aligned with the proceeds of the sale that the seller would pay, as opposed to the buyer paying tax on the purchase.
So, with these potential changes looming, what are your options? Well, now is a good time to review your asset base fully with your accountant to assess your current CGT position – what assets do you own that are sitting with a gain? Do you have assets that are sitting at, or below, their original purchase price? If succession planning has been on your mind, then given the reliefs available to help you pass assets on in a tax-efficient way from a CGT and Inheritance Tax perspective, then now could be the time to take forward your plan.
Alex Docherty is tax partner at Johnston Carmichael.
“Not outwith the realms of possibility that we could see CGT rates brought more into line with income tax rates