If you are thinking of selling a UK residential property after April this year (after 6th April 2020) beware of a substantially shorter time frame within which you need to notify HM Revenue & Customs and to pay the tax due!
Unless a property is your only or main residence, Capital Gains Tax (CGT) must be calculated when a property is disposed of and, if you are UK resident, any tax is usually payable by 31st January following the end of the tax year.
Non-UK resident property owners are already subject to special rules which require a separate form to be submitted to HM Revenue & Customs and tax to be paid within 30 days of completion. From 6th April 2020 UK residents will be subject to similar rules too!
This will undoubtedly involve more administrative work but also brings other complications for the unprepared, including a potential negative cash flow issue due to the complexities of the calculations for the estimated tax.
You will need to have to hand a record of all original acquisition dates and costs, all capital costs incurred during ownership, details of any other capital gains or losses made in the same tax year as well as a good estimate of your overall expected income from all other sources so that the ‘in year’ tax paid is as accurate and as low as possible.
If making multiple asset sales, some of which result in capital losses, the timing of these could be crucial as only losses made before the property sale will be able to set against the ‘in year’ tax bill. If you make losses after this disposal they don’t get taken into account until the end of the tax year – so you are paying tax now and may have to wait a number of months to get it back!
The CGT is entered onto the personal tax return as usual, so if the amount due at the end of the tax year differs from the estimated amounts already submitted it can be rectified at that point and any overpayment will be refunded. Depending on timing, however, the return may be submitted many months after the property sale and so you could be out of pocket for a long time.
Whilst the administrative burden on you as a landlord continues to increase, being prepared is the best way to tackle such situations. Some simple planning is always a benefit, such as maintaining a summary of the information that might be needed in the event of the disposal so that calculations are accurate and you do not pay too much too early, or if you are likely to dispose of multiple assets subject to CGT you should plan the timing of these so that losses can be used in the best way.
What suits you best will be individual to you. If you have an advisor already, be sure to notify them of any intended disposal as early as possible in the sales process so they can confirm what information they might need and avoid a last-minute rush. If you do not already have an advisor and have any concerns or queries about your property taxes, we recommend that you have a look at the Landlords advice page from A4G Chartered Accountants via this link and drop them a call on 01474 853 856. A4G is a friendly, knowledgeable firm with specialists on tax for landlords. They will be happy to point you in the right direction or give support where needed.