Further to my blog on 27 August 2019, in which I highlighted the changes that are coming into main residence and letting relief, changes are also being made to the way that capital gains tax is payable on the sale of residential properties with effect from 6 April 2020.

Presently an individual’s capital gains tax liability has to be paid by the 31 January following the tax year of disposal. Therefore, for a disposal where contracts complete during the year ended 5 April 2020 the capital gains tax does not have to be paid until 31 January 2021. This means the tax is paid anywhere between 10 and 22 months after the date of disposal.

For contracts that complete after 6 April 2020 the capital gains tax liability will have to be paid within 30 days from the date of completion. 

The calculation of the capital gain and the associated tax liability is likely to have to be estimated, as an individuals tax rate for a particular tax year will not be known until the end of the tax year. In addition only capital losses that have arisen prior to the disposal of the property can be taken into account when calculating the tax payable.

This change is effectively expecting taxpayers to make a payment on account of the actual capital gains tax liability, which will then be recalculated at the end of the tax year.

One question that you have to ask yourself is will you be able to find the relevant information to enable a capital gain to be calculated within this short time frame.

I would therefore recommend that as soon as you place your property on the market, if not before, you start to gather together the information that would be needed to calculate the gain.

Whilst the 6 April 2020 may seem a while away, this date will soon be upon us. If you are thinking of selling a residential property, then you may like to consider the above to see if it is advantageous to bring forward the disposal to take advantage of the longer payment period for the tax liability and the more favorable tax reliefs as they stand at the moment.

If you wish to discuss any of the above further and how the changes may affect you, please give me a call.