On 6th April 2020, changes to the way in which deadlines and paying Capital Gains Tax (CGT) were made.
The changes apply to both UK residents and non-UK resident and apply to the disposal of an interest in a UK property from 6th April 2020. This does not include the residential property that has been solely used as the owner’s private residence as this is covered by private residence relief.
The changes for UK residents only apply to disposals of UK residential property
What Change Were Made?
From 6th April 2020, a UK resident disposing of residential property in the UK making a gain will have 30 calendar days from the date of completion to tell HMRC and pay what Capital Gains Tax is owed.
A new online service has been set up to allow this to be reported. You will need to set up a Government Gateway ID and password if you have not already.
This is also no longer an option to defer payment of CGT via the Self-Assessment return. Any tax that is owed must be paid within the 30 calendar days.
To help those selling properties familiarise themselves with the change in the rules and a new on-line process, HMRC is allowing a period of time to adjust and will not issue late filing penalties for CGT payment on account returns received late up to and including 31 July 2020.
For UK residents, this means transactions completed between 6 April and 30 June 2020 and reported up to 31 July 2020.
Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 calendar days.
Looking to the Future
Potential ways the chancellor could change CGT rules
Chancellor Rishi Sunak has recently written to the Office of Tax Simplification to commission a review of Capital Gains Tax.
While reviews on various taxes are common and expected, the clear need for the chancellor to raise tax revenue to accommodate for the emergency COVID budget, and remembering calls for tax simplification before the lockdown, it would seem Capital Gains Tax is in the firing line.
The UK has historically taxed Capital Gains at income tax rates, which has led to some complexity in assessing peoples overall tax positions at the fiscal year-end. Prior to the current system, a single rate of 30% was used. Could a single rate be back on the cards? We will have to wait for the completion of the review to find out.
It is not just the rate of Capital Gains tax that may change. The chancellor may look at adding Capital Gains Tax on all assets under Inheritance Tax. A reform of the current Inheritance Tax system must go hand in hand with this decision if the chancellor was to make it.
The Annual Exemption allowance of £12,300 for each one of us may also be reduced or written off, whilst the rules surrounding Private Residence Relief may be simplified to a flat rate exemption to avoid unnecessary complications.
There are many reliefs and exemptions within CGT that could be changed and many ways in which they may. We here at Henry Bramall and Co will keep you up to date with any news from the current review.