Capital Gains Tax changes coming soon

The 2015 Autumn Statement proposed another tax change for beleaguered “Buy to Let” investors but this time the focus will be on capital gains made on the sale of a residential property. Fortunately, this proposed rule change will not impact on properties where the gains are exempt under the private residence relief.

So what is all the fuss about?

Imagine I decide to sell my Leeds Student let property which I have owned for the last 15 years. It’s been a good investment & I made a healthy gain of say £100k.I have agreed to exchange contracts & complete with the new purchaser at the start of the new tax year on 6 April 2016.This will also give me some time to deal with certain repairs which were agreed with the purchaser.

This date of exchange falls into the 2016/17 tax year (don’t ask why we have such strange dates for our tax year – something to do with the Romans I think !!) & under the current Self-Assessment tax rules I will be expected to pay my capital gains tax (CGT) liability on the normal date in January following the end of 2016/17 – which in this instance is 31 January 2018.

Now this is good news because I expect to receive the net sale proceeds of my Leeds Student let in April 2016 but under current rules, will not be required to make my CGT payment until January 2018 – that’s some 22 months later which is great news for my personal cashflow but not so good for the Exchequer!

From April 2019 onwards it is “proposed” that 30 days after the sale you will be required to make a “payment on account” of your CGT liability.

So lets assume I delayed the sale of my Leeds Student Let until say, 6 April 2019 but still making a £100k profit– under the recent HMRC proposal (subject to consultation) I would be required to offer HMRC a “payment on account” on or before 5 May 2019.That’s just 30 days after selling the property.

But how much do I pay?

It’s at the start of the 2019/20 tax year & if my income & profits vary each year I’ll not have any idea whether I am a 20%,40% or 45% taxpayer & this could impact on the CGT “payment on account” – which just to complicate matters is normally charged at 28% !! If I err on the side of caution & underpay the payment on account will I then be charged interest (& possibly penalties) for such underpayment?

I might incur some CGT losses later in 2019/20 tax year to offset against my property gain entirely –so in this situation, can I claim a refund. If so, I bet it’s not within 30 days!!

The whole idea to pay “on account” of the CGT liability is fraught with difficulties & many of our “Buy to Let” clients are beginning to feel abit victimised, especially as this proposal comes close on the heels of the changes to interest relief on those property owners who fund their letting businesses with debt.

Some are quite rightly saying why doesn’t this proposal also target sellers of say, commercial properties (offices, warehouses & shop units) or shares in trading businesses.

I do understand the need to deter certain non-resident owners who HMRC have difficulties in tracking down after the sale of the property but why complicate the current system for a small minority of less compliant taxpayers.

To end on a positive note though, at least HMRC have promised a reasonable “window for consultation” – which at the time of writing is eagerly awaited. Watch this space & if you have any comments which could help my Professional Body with their submission, please get in touch.

For more information on this topic, please contact Nigel Shaw – or enquiry@garbutt-elliott.co.uk – 01904 464 100