Published 5th March 2019; Updated 8th December 2019
If you dispose of an asset and that disposal is subject to Capital Gains Tax (CGT) the disposal and the gain are currently reported to HMRC through the Self Assessment tax return for the year in which the disposal occurs. So if you had disposed of an investment property in late April 2017, it would have been reported in your tax return for the year ended 5th April 2018, and any tax paid on 31st January 2019, some 21 or 22 months after the disposal.
With effect from 5th April 2020 all disposals of residential property by UK residents will have to be reported within 30 days of the completion of the sale using a provisional CGT return, and pay a provisional amount of CGT within 30 days of the completion of the sale. The disposal will still have to be reported in the full Self Assessment tax return at the normal time.
The calculation of the provisional gain will be quite complicated. The taxpayer will have to make an intelligent guess at their level of income for the tax year to decide how much of the CGT is at 18% and how much is at 28%. Not easy when you are self-employed and the disposal is near the beginning of the tax year. Then any losses brought forward may be deducted (including any losses already suffered in the same tax year) but any gains on assets other than residential property will be ignored.
If you make a loss later in the year there is no facility (at present) to reduce the payments on account of CGT that you have already made.
Penalties will apply to late returns and these are in addition to any penalties under the Self Assessment regime. That leaves very little time to assemble all the information needed, such as the paperwork relating to the purchase, and of course any allowable improvements.
It is important to remember that very few transactions are exempt from CGT and therefore exempt from reporting. Just because no money changes hands it does not mean the transaction is outside the scope of the tax. The only disposals that are exempt are:
1. Where the gain is covered by private residence relief;
2. Where any losses or annual exemption are sufficient to cover the gain at the time the disposal occurs;
3. Where it is a no gain/no loss disposal eg.: between spouses and civil partners.
The following changes are now law:
If you are thinking of disposing of any asset speak to us first!
The information contained in this newsletter is believed to be correct at the time of publication. The content of this newsletter is intended to be a brief summary of the principal points of the legislation or proposed legislation only, and it is provided for general guidance only. It may not take into account subsequent changes in the law and of necessity it omits much detail. Taxation is a complicated subject and is subject to change. You should only rely on advice prepared specifically for you. Neither the writer nor Landlords Tax Services Ltd can be held liable for any loss arising from any act or omission by you as a result of your understanding of this article. If the subject matter is of interest you should contact us to see if there is a relevant update, and to take professional advice which takes into account your circumstances.
Landlords Tax Services Ltd, specialises in the taxation of residential property income and gains and more than half its clients are resident outside the UK. If you would like specialist help contact Maurice Patry F.C.A .at email@example.com or for more information visit our website at Landlords Tax Services Ltd.
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