Changes to Capital Gains Tax (CGT) on buy to let property could cost you dearly

From 6th April 2020, HMRC introduced new rules regarding when you are required to pay your Capital Gains Tax bill arising from the sale of additional properties in the UK. Fall foul of the rules and you could be in for a hefty penalty charge. 

Capital Gains Tax (CGT) is the tax you pay on any profit when you sell or dispose of (or gift) an asset.   

You do not pay CGT if you are selling your main residence, however any other properties you own could be subject to CGT if you have made a gain. Examples of these properties include; buy to let, business premises, land, property that you have inherited.   

Current CGT rates range between 10% and 20% for individuals (with proposals being considered for these to rise). However, if you are selling a property that isn’t your main residence, currently you will be subject to higher rates of CGT, 18% on any gain that falls within your Basic Rate Tax Band and 28% for the gain that falls above this. The current CGT allowance is £12,300 per year, which means that no tax is paid unless the gain is more than the allowance. Therefore, if the gain on the property falls within your annual CGT allowance plus any losses, you will have no tax bill to pay and no requirement to fill out a return.

The new rules 

However, if the gain is more than the annual allowance from 6th April 2020 you must pay the tax you owe to HMRC within 30 days of the sale. A stark contrast to previous rules with hefty fines the longer you wait to pay your tax bill. 

Previously the rules stipulated that gains were reported via your self-assessment tax return and therefore any tax bill would not need to be paid until the following tax year.  

Whilst the rates remain level, so the cost you will need to pay has not changed, the new timeframe requires attention from individual landlords, trustees, and personal representatives. 

These changes only apply to legally binding contracts of property sales made on and after the 6th April 2020.  

If you fail to pay within this timeframe you could incur interest and penalty charges on the tax owed. And with little publicity around the changes, it is possible that many people may be caught out, especially at a time when people and businesses may be struggling, and rents could have dried up. 

Hefty penalties could catch you out 

Failing to complete a return and pay within 30 days incurs an automatic late filing penalty of £100. If the return is more than 3 months late, daily penalties can apply and then fixed penalties of £300 at 6 and 9 months. This works in the same way as if you are late for your annual self-assessment return.   

How can you pay?   

In response to the changes the government has introduced a new online service that now allows you to report and pay CGT owed instantly: https://www.tax.service.gov.uk/capital-gains-tax-uk-property/start/report-pay-capital-gains-tax-uk-property.

So, if you are concerned about your possible CGT liability as a result of property sales or you’d just like to discuss how you can look to minimise the tax on your estate, why not get in touch and speak to our expert financial advisers for help and guidance.