From April 2020, the way that you are required to report and pay capital gains tax (CGT) made from the sale of residential property is changing. This will affect how and when you’re required to report CGT.
Current Rules
At present, capital gains made by individuals are reported through self-assessment. For example, if you sell a property between 6 April 2019 and 5 April 2020 you must declare it on your tax return and pay the tax you owe no later than 31 January 2021.
The New Rules
As of 6 April 2020, you will have just 30 days following completion of the sale to submit a provisional calculation of the gain and pay tax you estimate is due. You will still be required to declare the gain on your self-assessment tax returns and pay, by the usual self-assessment deadline, any CGT due over and above your provisional payment.
It must be noted, the 30-day declaration and payment applies whether you’re in the self-assessment system or not. If you are not, HMRC says it will not require you to register for self-assessment just because you’ve made a capital gain. Instead, after the tax year in which you made a gain ends, you’ll be required to review your provisional calculation and make any changes needed.
Estimating your CGT
To work out your provisional CGT bill you’ll need to estimate your taxable income for the year to determine how much CGT is payable at 18% and how much at 28%, (current rates).
Tip 1 – You’ll be allowed to reduce the gain liable to tax by capital losses brought forward from earlier years and those made in the same year as the gain up to when you make your provisional calculation.
Tip 2 – If you intend to sell assets which will make a loss, say shares, consider making the transaction before you make a gain reportable under the 30-day rule. That way you can take account of the loss when working out your provisional payment
No Going Back
Once the estimated calculation has been estimated and the tax has been paid, if it is discovered that a capital loss has been made, you will not be allowed to reduce it until you submit your self-assessment tax return. It must be noted that if the 30-day deadline is not met, penalties will be implemented.
If you would like any assistance with CGT or submission of your self-assessment tax return, please contact Priya Raja-Motala.