Capital Gains Tax Planning – plan ahead for the April 2020 changes

08 August 2019

Our latest Real Estate Matters publication (Download here) referred to the changes in Capital Gains Tax that will come into being on 6 April 2020.

In summary:

  • Lettings relief – where a property was at some stage a person’s main residence but also had a period when it was let – up to £40k of any gains was potentially relievable. From 6 April 2020 the relief only applies if the letting was undertaken whilst the owner lived in the property at the same time. I suppose it is now a ‘lodger relief’.
  • Where a property was once your main residence the last 18 months of ownership, even if you were not living there, was treated as qualifying for principal private residence period and exempted from tax. After 6 April 2020 this period becomes 9 months.

Implications of the 6th April 2020 changes

Both the above changes could have costly implications when a property is to be sold. If you are thinking of selling you may wish to bring forward the timing, not only because of the rule changes but there is one other change coming into effect on 6th April 2020.

From that date – 30 days following completion of the sale of a residential property you have to submit a provisional calculation of the gain and pay the tax that is due. Ultimately the gain will be recorded on your self assessment form (if you are not registered for self assessment – you have to register) and adjust for any additional tax that is due or recoverable. You have to wait until the submission of your return before obtaining a recovery if you have accidently overpaid.

For some there will be the difficulty of determining whether they pay tax at 18% or 28% which will be dependent on their income for the year, which may or may not be easily quantifiable (redundancy, change of job etc.)

Capital Gains Tax Planning

If you are thinking of selling a property, maybe you should consider doing it in this tax year 2019/20 when you are able to assess the likely personal tax rates knowing any tax that is due won’t be payable until 31 January 2021.

Similarly, if you were thinking of gifting the property to a member of the family, the analysis may demonstrate sooner is preferable rather than later.

If the disposal has to be done after 6 April 2020, think about:

  • For married couples, putting a property in joint names to use the annual allowance and possible lower rate of CGT.
  • Selling shares that are showing a loss before the sale of the property so you can reduce the CGT payable.

What will be the impact of these Capital Gains Tax changes?

The impact of the rule changes is set out below in example format.

If we assume that a property owned jointly by spouses, currently worth £600,000 and acquired ten years ago for £200,000, is sold in April 2020 where the property had been occupied for the first four years of ownership and then let out until sale, the comparative CGT position is as follows:

  TO 5TH APRIL 2020   FROM 6TH APRIL 2020
   Spouse A  Spouse B    Spouse A  Spouse B
   £  £    £  £
Proceeds  300000  300000     300000   300000
Cost  100000  100000    100000  100000
Gain  200000  200000    200000  200000
Exempt Gain          
Period of main residence  80000  80000    80000  80000
Final ownership period  30000  30000    15000  15000
   110000  110000    95000  95000
Letting Relief  40000  40000      
Chargeable Gain  50000  50000    105000  105000
Annual Exemption  12000  12000    12000  12000
Gain on which CGT due  38000  38000    93000  93000
CGT @ 28%  10640  10640    26040  26040
Due  31/01/2021  31/01/2021   30 days post completion 30 days post completion 

Thus, the increased gain, tax and accelerated payment can be seen.

Contact us

If you have any questions regarding Capital Gains Tax planning and would like to discuss your options if you are thinking of selling a property, please contact Brendan Sharkey, Head of Construction and Real Estate. Alternatively, you can send an online enquiry.