Back in April 2019 we mentioned some further tax traps if you are resident in the UK and you exchange contracts to sell a residential property from 6 April 2020…..?
Bombshell Number One
If you lived somewhere either before or after you let it out to someone else there was a very useful tax break called “lettings relief” but from 6 April 2020 you will only be able to claim “lettings relief” if you lived in the house at the same time as your tenant. However, if you live in your house as your main home, that period is covered anyway by the existing Principal Private Residence tax relief ! This new arrangement only therefore helps when you do not live there as your main residence. Homeowners who move and then let out their former home could be significantly affected by this change in capital gains tax relief. You will also be affected if you let out and then move in to use it as your main residence.
If you are contemplating selling in this situation, it would be wise to take advice
NOW and we have the expertise to provide this.
Bombshell Number Two
If you owe tax on selling or giving away residential property from 6 April 2020 you must –
- Make a special return within 30 days of completion, and
- Pay the estimated tax due within 30 days of completion
The rules are pretty complex. When you calculate the gain on selling, you still take the date of exchange as being the tax date of disposal.
But the special return is due within 30 days from completion. You still need to make a “normal” tax return by 31 January after the tax year of disposal (decided by the exchange date) .
To explain further, here are three different examples….
- If you exchange on say 31 March 2020 but complete on 8 April 2020, you should just inform HMRC about this before 6 October 2020 and make your tax return to show the gain by 31 January 2021 and pay the tax by 31 January 2021.
- If you exchange on say 7 April 2020 but complete on 12 June 2020, you must make your special return and pay the estimated gains tax by 12 July 2020. When you make your “normal” tax return you take in to account the tax you paid earlier under the 30 day rule. You make your “normal” return by
31 January 2021.
- If you exchange on say 5 April 2021 but complete on 12 June 2021, you must make your gains return and pay the estimated gains tax by 12 July 2021. When you make your “normal” tax return for 2020/2021 you take in to account the tax you paid earlier under the 30 day rule. This means the estimated tax you paid during 2021/22 is referred back to your tax due for 2020/21.
And there’s more…..
- The 30 day rule payment is only an estimate because when you complete you may not know about other possible gains or losses to be made in that tax year that have not yet occurred.
- When you calculate the estimated tax you can take account of all tax reliefs available before the return is made such as losses in earlier years and your capital gains tax annual exemption.
- You can’t get back any estimated tax overpaid until your “normal” tax return is submitted. So, if you over-estimate tax payable for say June 2020, you can’t recover it until late April or May 2021 at the very earliest.
- There will be penalties for not making returns and for sending returns in late.
- HMRC will know about transactions by receiving data from HM Land Registry.
- It will pay you to estimate your 30 day gains tax as accurately as you can.
- You only have to make these special returns if you owe gains tax on the disposal.
- A gift to a spouse or civil partner is tax free if you are not separated in the year of giving.
- Gifts to family (as well as friends) are usually subject to capital gains tax.
- If you make a gift of property you will have to pay the tax due within 30 days, with no cash proceeds available to fund the tax bill.
We do believe that many conveyancers (including solicitors) will not know about these complex and important changes, let alone knowing how to deal with returns on your behalf.
This is why it pays to get specialist tax advice before you transact. We are well placed to help you with your tax obligations so please give us a call to discuss the way forward.
