Changes to Capital Gains Tax on buy-to-let properties, second homes or holiday lets

 

Capital Gains Tax on property is set to change soon (6 April 2020). If you’re a professional landlord – or own any other property on top of your main residence, you will need to be aware of how these changes will impact you at the point of selling a buy-to-let property, second home or holiday home.

There are three main proposed changes to legislation around Capital Gains Tax:

Capital Gains Tax liability

Currently, when you sell a property that’s not your main residence, the gain, minus costs associated with the sale are reported on your annual tax return. If you’re then liable to pay Capital Gains Tax, these need to be paid by 31 January; following the end of the tax year when the property was sold.

From 6 April 2020, you’ll need to submit a residential property return and make the payment within 30-days from completion of the sale. This 30-day rule will only apply to UK residential properties sold on or after this date – and only where Capital Gains Tax is chargeable.

Private residence relief

Currently, when your property has been your main residence for the last 18 months of ownership, this is treated as the principal private residence period and exempted from tax.

From 6 April 2020, this period will be reduced to 9 months.

There will be no changes for people who move into a care home or have a disability. The relief period will remain the same and be the last 36 months of ownership.

Lettings relief

Currently, if a property was your main residence at any point of ownership, even with periods of being let; you would be entitled to claim a Capital Gains Tax relief of up to £40,000 of any gains. If the property is jointly owned and not with your spouse, you would be entitled to tax relief on gains of up to £40,000 each.

From 6 April 2020, this relief will only apply if the property was let out whilst you were living in it.

What is Capital Gains Tax?

Capital Gains Tax is a tax paid on the profit made from an asset sold or disposed of, which has increased in value. It is the increase in amount of value that is taxed – not the whole sale or disposal cost.

For example, you bought a house for £100,000 and then sold it for £150,000. This means you made a gain of £50,000 – the amount which would be subject to tax.

What you pay Capital Gains Tax on

You pay Capital Gains Tax on the gain you make on, what are known as chargeable assets, which include:

  • Business assets
  • Property that you don’t live in as your main home
  • Your main home if you’ve rented it out, used it for business purposes or it’s a very large property
  • Most personal possessions, apart from your car, which are worth £6,000 or more
  • Shares that are not in an ISA or PEP

It is possible to reduce any Capital Gains Tax you pay by claiming a relief if you’re able to. If you have made a gain on an asset you jointly owned with someone else, you would only have to pay Capital Gains tax on the actual amount you gain.

When you don’t have to pay Capital Gains Tax

Capital Gains Tax is only paid when the total amount you earn every year is more than an annual tax-free allowance.

You also don’t have to pay Capital Gains Tax on:

  • Gifts to your spouse (wife, husband, civil partner)
  • Gifts to charity
  • Lottery, pools or betting winnings
  • ISAs or PEPs
  • UK Government gilts and Premium Bonds

Capital Gains Tax allowances

You only have to pay Capital Gains Tax if your gains add up to more than your tax-free allowance – or Annual Exempt Amount.

  • £12,000
  • £6,000 for trusts

No issue is too taxing for us!

It’s that time of year again…tax returns must be submitted, and HMRC bills need to be paid.

If you have a business or are self-employed and have been faced with unexpectedly high bills – then we could help by securing additional funding to cover them.

Let’s discuss your lending requirements now!