There are new tax reporting and payment rules that will apply from April 2020 on the sale of residential property by individuals, partners and trustees. These rules do not apply to the sale of the family home but will apply to second homes including those co-owned with children or properties that are rented out.
The position for these taxpayers currently is that the sale of the property is reported on their annual tax return and the tax is payable on 31 January after the end of the tax year in which the disposal arises. So for a disposal on 30 April 2019 then the deadline for reporting the sale and for paying the capital gains tax on the sale will be 31 January 2021.
However, under the new rules then in addition to reporting on the taxpayer’s annual tax return, the taxpayer is also required to make a return reporting the gain and tax payable within 30 days of the completion date on the sale of the property. In addition, the capital gains tax at 18% or 28%, depending on the taxpayer’s tax rate, is payable within 30 days too. This can result in an acceleration of the tax liability by up to 21 months. For instance, a disposal on 30 April 2020 would need to be reported by 30 May 2020 and the tax settled by this date and be included on the taxpayer’s tax return by the tax return deadline of 31 January 2022. In this scenario not only is that tax payable earlier than the tax from the sale in April 2019 by 8 months and 20 months earlier than under the current rules.
As mentioned, this does not apply to the sale of your family home but can apply to a family home where the taxpayer has not lived in it throughout the period of ownership. This could be because they lived away from the home for a while or rented it out for part of their ownership period.
This applies to individuals, partners and trustees that have residential property portfolios and sell any of these properties. It is therefore important that they should seek tax advice on the potential taxation liabilities and reporting obligations prior to completion of the house sale to avoid penalties due to late reporting.
For further information and advice on these changes may affect you, please contact your local office by calling 0330 088 7111.