Have you heard about the Capital Gains Tax 30-day rule for house sales that came into force on 6 April 2020?
If not, now is a good time to get up to speed. The rule not only means that you have to hand over any Capital Gains Tax you owe within a month but – thanks to other rules that were introduced at the same time – you could also find yourself paying more tax.
If you own a property that you have ever let out, this will apply to you. So read on to find out what to do next.
What’s different about the CGT 30-day rule?
In the good old days, if you owed CGT on a house sale, you simply declared it on your self-assessment tax return. Anything you owe was due by 31 January following the end of the tax year in which you sold the property.
Nowadays, HMRC wants its money much quicker. You have just 30 days from the completion of your house sale to submit a provisional CGT calculation and pay the Tax over.
If your provisional calculation is too high, you won’t get any overpaid tax back until after you’ve submitted your self-assessment return. If it’s too low, you’ll get a bill for the remainder instead. So you need to get it right, which is a difficult task as well as one that’s about to get more complicated.
Why are CGT calculations getting more complicated?
The changes aren’t limited to the CGT 30-day rule. A number of other new measures came into force at the same time – making CGT calculation even more complicated. Two, in particular, could catch you out.
- Letting Relief is no longer available for most sales. Until April 2020, if you sold a house that was your main property at one time, you can claim up to £40,000 in Capital Gains Tax Letting Relief. From 6 April 2020 this all changed and you can now only claim this if you were living at the property at the same time you let it out. In other words, Letting Relief is no longer available for the majority of sales.
- Final period of ownership rules is now less generous. Until April 2020, the last 18 months of ownership were treated as though the property was your principal private residence (meaning the gain during this period is tax exempt). But nowadays, this relief only applies to the last 9 months of ownership – so your bill will be higher.
In short, not only do you now have to pay more CGT but you also have to hand it over much quicker.
Why is the Capital Gains Tax 30-day rule a problem?
Calculating CGT is complex at the best of times. To get it right, you need a whole raft of historical information, including the original purchase date, the dates and costs of any improvements you’ve made over the years, plus all sorts of other evidence.
Yet, once you’ve sold your property, the clock is ticking and you’ve 30 days to get help and submit your provisional CGT calculation.
It’s unlikely the solicitor handling the sale of your property will be able to help. For a start, most solicitors aren’t authorised to give tax advice – and it’s unlikely many will want to!
So, you either have to do the CGT calculations yourself or ask an accountant. If you do it yourself, you run the risk of paying too much (and having to wait months for a refund) or too little (risking a second bill for the remainder).
On the other hand, if you talk to one of our accountants, we can go through all the information you supply and work out exactly what CGT you owe – as well as look for ways of keeping your bill as low as possible.
If you’re thinking of selling any property that you’ve rented out (even for a short period), talk to us today and arrange a Residence Review with a member of our team. It’s a phone call that could save you a lot of hassle with the taxman!
About Karen Jones
Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.
With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.
Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”
Karen’s specialist skills:
- Personal Taxation
- Tax Efficient Planning
- Trust Administration