Capital Gains Tax Planning: What you need to know ahead of the April 2020 changes

Timing of payments

Another change of note is regarding when CGT liability is due to be paid. From 6th April 2020, Capital Gains Tax liability must be provisionally calculated and paid within 30 days of a property being sold. This rule also applies to properties that are gifted or placed in trust. If payment isn’t made within this 30-day deadline, HMRC will add interest and may apply additional penalties on top.

This revised time period for payment is considerably shorter than that in effect prior to the Finance Bill 2020, when Capital Gains Tax had to be paid by 31st January in the year following the gain being made.

Those most at risk of being caught out by this change are property owners carrying out a single transaction, where the property being sold was previously their main residence.

There are also issues regarding the level of CGT which will apply to each individual. Whether CGT is payable at either 18% or 28% depends on how much income has been received during that tax year. For some, which tax bracket they fall into may not be clear until the end of the year due to a variety of factors such as redundancy, a change of job, or fluctuating income. There is concern that some will be required to make an almost immediate payment to cover their CGT liability which may be grossly under- or over-estimated.    

The importance of Capital Gains Tax planning

Capital Gains Tax planning is now more important than ever if you own property that you once resided in and is now being rented out to tenants. Failing to understand the implications of these new rules exposes you to allegations of non-compliance as well as financial penalties in the form of added interest and HMRC fines.

If you’re anticipating selling the property in the near future, or are undecided as to your long-term plans for it, it would be worthwhile obtaining professional advice as you may decide you need to sell sooner rather than later.