Changes to Capital Gains Tax (CGT) announced last year came into effect on 6 April 2020. This could lead unwary investors open to extra tax charges and penalties.
Most people selling residential properties also live in them and therefore any increase in value in a property is not subject to CGT on a sale. However, the same is not true for buy-to-let investment properties or holiday homes. If such a property is sold at a profit, that profit would usually be subject to CGT. Up until recently the tax-payer would make a calculation as to how much CGT is due (if any) and declare that in their next tax return.
Sellers of UK residential property must now report disposals to HMRC within 30 days of completion. At that time, payment on account of any tax due will need to be made. Interest and penalties will apply to late filing and/or payment.
This does not just relate to sales. If an investment property is gifted from parent to child or transferred by an executor to a beneficiary under a Will, any uplift in value since that property was acquired means CGT may be payable on the notional increase in value.
Principal private residences are also not exempt from this requirement if there are gardens and grounds that the exemption may not fully extend to, periods of absence from the property, periods of letting the property, or parts of the property being used for business purposes.
The situation is not simple; those selling or transferring investment properties should therefore take advice from their accountants or tax advisers well in advance of the disposal. If a portfolio of properties is to be disposed of then staggering them over several tax years may be a good strategy.