30 SECOND SPEED READ – CAPITAL GAINS TAX: PAYMENT ON ACCOUNT
Residential disposals made by UK residents on or after 6th April 2020, will trigger a requirement to file a CGT return and to pay the tax to HMRC within 30 days of completion. This will work similarly to the rules already in force for sales of UK property by non-residents, but will not affect disposals which do not trigger a liability, for instance, because of principal private residence relief (‘PPR’).
Under current tax rules, a seller of residential property simply pays the CGT when submitting a tax return for the period in which the disposal occurred. The move to payment on account will have a negative cash-flow impact for two reasons; not only will taxpayers have to pay the relevant tax earlier than currently, they may also have to pay CGT even though no CGT will be due for the relevant tax year because a CGT gain will be subsequently matched by a CGT loss. In the latter scenario, the taxpayer will have to wait until the submission of the tax return for the relevant year to claim the loss.
The rules will mainly impact sellers of buy-to-lets etc., but they may also impact those selling their main residence if the gain is not totally covered by PPR. Property solicitors should ask their clients to contact them in the event of a planned sale to ensure appropriate tax advice has been taken in advance of the transaction.