Capital Gains Tax (CGT)

The Chancellor announced in their Spring Budget 2024 that higher rate CGT residential property rate will be reduced to 24% in 2024/25 tax year.  The Chancellor in his 2022 Autumn Statement announced the halving of the tax free Annual Exempt Amount over following couple of years so it has now dropped to £3k from 6/4/24.  See further details below.

Capital Gains Tax changes

HMRC made several changes to Capital Gains Tax regime, specifically in relation to properties, from 6 April 2020.  Below we highlight the changes and what they could mean for you, please get in touch for specific detailed advice for your circumstances (see bottom of this page for contact details).

Firstly, what is Capital Gains Tax?

Capital Gains Tax (CGT) is payable when you sell (or dispose of):

- Most personal possessions worth £6,000 or more (excluding cars)
- Property that is not your main home
- Your main home if you have let it out, used it for business or it is very large
- Shares that are not in an ISA or PEP
- Business assets

When Capital Gains Tax is due on disposals of assets, such as a property, tax is payable on any ‘gain’ made i.e. sales price minus purchase price. 

As we are specifically considering residential property in this instance the rates of CGT that will be applicable are 18% for basic rate tax payers and 24% for 24/25 tax year (was 28%) for higher rate taxpayers – these are chargeable on any gain made (remember the gain could push you into higher rate tax bracket). Previously CGT was reported on your self-assessment tax return which is due by 31 January after the end of relevant tax year ( a tax year runs from 6 April to 5 April). There is now an option for residential properties where you can report online via your personal tax account using HMRC’s ‘real time’ CGT service. 

Are there any Capital Gains Tax exemptions?

There are several reliefs that are available with regards CGT which are complex so for this situation let's briefly mention a few of them (there are also reliefs for business assets, for example, that have not been mentioned here): 

• Principal private residence: As mentioned above, when people sell their own home it is covered by ‘principal private residence (PPR)’ relief so no Capital Gains Tax is payable and no disclosure to HMRC is required.
• Tax-free allowance (AEA): Every individual has a Capital Gain tax-free allowance each year, known as an Annual Exempt Amount (AEA), which was £12,300 for 2022/23 tax year i.e. up to 5/4/23.  This Annual Exempt Amount reduced from 6/4/23 to £6,000 for 2023/24 tax year and then to £3,000 from 6/4/24 onwards. If gains on a sale/disposal in a tax year are within this allowance no CGT is payable, but you might need to declare the disposal on a personal tax return.  Any unused CGT tax-free allowance can not be carried forward or carried back, so it will be lost if not used.
• Spouse exemption: It is also always worth remembering that transfers between married couples/civil partners are exempt from CGT.  This can be useful as each individual is entitled to a tax-free allowance. For example, if a husband and wife jointly own a property, they each get their tax-free allowance (AEA) towards their 50% share of any gain on sale of the property.

What are the changes that came into effect from 6 April 2020?

1. 60-day* reporting & payment window: This is a new reporting procedure which mean that within 60 days of disposing of a property a ‘payment on account return’ will need to be submitted to HMRC along with payment of Capital Gains Tax due.
2. Abolition of letting relief: This is the removal of letting relief for individuals.  Letting relief has been available on a property that at one time during ownership was a person’s own home i.e. their principal private residence.
3. 50% reduction in deemed own home relief: This will reduce the final period of deemed own home relief in half to 9 months from 18 months which is available, again, if at some stage an individual lived in a property as their principal private residence.

These changes mean that owners of residential property will have to think carefully about the timing of any sale or gift of their property.   A 30-day (extended to 60-day on 27/10/21) reporting and payment window was already in place for non-resident landlords who must report any sale to HMRC even if no gain was made. While on topic of non-resident landlords it is worth highlighting the option to rebase your purchase cost based on 5 April 2015 market value (known as 'rebasing method').

For UK residents these new requirements will affect those disposing of rental properties or second homes i.e. (assuming proposed changes come into effect) from 6 April 2020 you will need to submit a ‘payment on account return’ to HMRC within 60 days of completion of the sale and make payment within same 60-day time limit (*note the deadline was extended in autumn 2021 budget from 30 days for property sales that complete on or after 27 October 2021 - if completed before that the 30 day deadline remains). They will not apply to disposals covered wholly by private residence relief (PPR) but will apply to the non-exempt element of the gain where only partial PPR is available.  

As the reporting timeframe is only 60 days (30 days for property sales up to 26/10/21) you must estimate what tax rate is applicable to them i.e. basic or higher rate even though the current tax year hasn’t yet ended which could mean people pay too much CGT and must wait until after the end of the tax year to complete a self-assessment tax return to recover any overpaid tax.

How do I navigate the new changes?

Therefore you have two options:-

1. You can deal with the CGT issue direct.  You have only 60 days from completion of the transaction to inform and pay HMRC (30 days for sales that were between 6/4/20-26/10/21). 
2. We can assist you with everything and our fees (quoted below inclusive of VAT) start from:

• CGT calculation for inclusion by an individual into their own personal tax account - £360 (or calculation for inclusion in a personal tax return they do themselves).  
• Completion of CGT real time return & submission to HMRC on your behalf - £390. For spouses i.e. doing both returns when property owned jointly the fee would be £660 (2 returns).
• Self-assessment tax return completion for an individual - in region of £450 (depends on specific circumstances so contact us for specfic quote)
• Non-resident CGT Tax return completion for individual - £480
• Non-resident CGT Tax return completion for spouses - £750 (for doing both returns to HMRC when property owned jointly)

GET IN TOUCH

Give Hollis Accounting Limited a call on 0131 225 2821 or email cgt@hollisaccounting.co.uk to discuss your requirements further and receive a no obligaation quote.

If you are an existing client, as ever, feel free to pick up the phone/drop us an email to discuss the CGT aspects when you are considering selling a property / any larger value asset.