Currently when you sell a residential investment property you pay CGT via self assessment, so if you sell now, that’s in the tax year to 5th April 2020, due for payment by 31st January 2021, but that’s changing very soon.
From 6 April 2020, when a UK resident disposes of UK land, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and the full liability will be payable within that same 30 day window.
That’s a big change in time scales!
In order to file potentially complex returns within that time scale, investors will need to
Keep full up to date records
An estimate of the UK Taxpayer full income will be needed to assess the rate of CGT to be applied
Details of the tax payers unused CGT annual exemption
Details of any CGT losses unused
These rules will also apply to Trusts
The rules will apply to UK Properties first and its planned to include overseas property a year later.
Assuming you own the property personally and its not your main residence (and benefiting from Principle Private Residence Relief), there are 2 rates of capital gains tax 18% for lower rate tax payers and 28% for higher rate tax payers.
You also have a CGT allowance which for 2018-19 is £11,700.
As a rough guide to assessing the tax
Work out how much you have earned – Salary, Pension, Dividends etc
Calculate your taxable gain + Sale Price – Sale Costs – Purchase Price – Purchase Costs – Improvements
You can then deduct the CGT allowance of £11,700 from the Gain (assuming you haven’t used against other gains)
If the total of 1 to 3 comes to more than £46,350 you pay 28% tax on the capital gain, if the total is less than £46,350 you will pay 18% on the gain until you hit £46,350 then pay 28% once you exceed it
You can now pay CGT straight away using the HMRC online service but most people do via self assessment and pay by 31st January following the end of the tax year.
A. Due to the abundance of legislation that applies to land transactions and gifts, various tax implications are of concern.
Where only an income stream is transferred and the transferor retains an interest in the capital value of the property generating the income, the income is treated for income tax purposes of the income of the transferor under the settlement legislation at ITTOIA 2005 s.624.
To effect a transfer of the income stream and achieve the client’s objective, the transferor must also transfer a proportionate capital interest. To transfer 50% of the income stream effectively, a 50% interest in the capital value of the property also must be transferred.
Capital assets are transferred between spouses at nil gain or loss for capital gains tax purposes. The deemed consideration is so much as would secure a net gain of £0 after accounting for enhancement expenditure, costs to transfer, etc. There are exceptions to this rule where the spouses are not living together so do not assume tax neutrality will apply.
Take additional care where the property in question was previously the main residence of the transferring spouse, as private residence relief may be inadvertently lost. A transferee spouse will only acquire the ownership and occupation history of the transferor where the property is transferred whilst it is the main residence of both spouses (TCGA 1992, s.222(7)). If the property is not their main residence, a gain which would have been 100% relieved in the hands of the transferring spouse will come into charge on a future disposal by the acquiring spouse.
The final tax charge to consider is Stamp Duty Land Tax. There is no exemption from SDLT for transfers between spouses. SDLT is chargeable where the acquiring spouse provides consideration for their interest in the property, including assuming liability for debt.
Although not technically a tax issue, it is of note that a transfer of beneficial ownership of a property does not require a conveyance of legal title. Although a trust arrangement does not need to be written to be effective, a written declaration which is signed and dated can prevent disputes with HMRC over the validity and commencement of the transfer, particularly where income continues to be deposited into a joint bank account.
If you thought paying Capital Gains at higher rates was bad enough wait till you have to pay income tax rates on the gains!
As reported by Property 118 on 25th August 2016
The government have slipped some additional clauses into the finance bill 2016 “Sections 75-78: taxation of profits from trading and investing in UK Land” which make profits made on the sale of buy-to-let property become taxable income, at income tax rates.
In the Autumn Statement 2013 it was announced that a CGT charge will be introduced from April 2015 on ‘future’ capital gains made by non-UK residents disposing of UK residential property. George Osborne said…
“Britain is an open country that welcomes investment from all over the world, including investment in our residential property”
“But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not. That is unfair.”
UK Residents typically pay capital gains tax at 28% on any profit from selling property that is not considered their primary residence.
Property lawyers and estate agents said foreign owners would be relieved the tax will not apply to historic gains before 2015. But they cautioned that the overall impact could be marginal as many foreign investors see London property as a safe and profitable place to park capital.
“Tax is not the primary driver for the majority of international buyers of residential property in London,” Knight Frank’s head of global research, Liam Bailey, said.
“It is important to note that the change to CGT rules brings the UK in line with other key investor markets, such as New York and Paris, where equivalent taxes can approach 35-50 percent depending on the owner’s residency status.”
It was not immediately clear how the tax would be collected and how it would apply if foreign owners used a domestic company to purchase property.
When a company disposes of an asset and makes a capital gain, as the main rate of corporation tax in 2014 is 21% (20% small profits rate) there could be a future tax saving opportunity for overseas investors to transfer property to limited companies.
There are other tax implications for example ATED (Annual Tax on Enveloped Dwellings) and SDLT (Stamp Duty Land Tax) but now could be a good time to consider your options.