Personal and business Tax

Capital Gains Tax Rules on Property Change

Property owners need to be aware of significant changes to Capital Gains Tax (CGT) rules regarding the disposal of property assets. A range of measures were announced in the Autumn Budget 2018 that will impact those selling their main home, second homes or buy-to-let properties. One significant change relates to the sale of main homes.

Whilst most people won’t be subject to CGT on their primary residence, because they are entitled to private residence relief, there are a number of circumstances in which you may be liable to CGT.

As long as the property genuinely has been your main home at some point, you won’t need to pay Capital Gains Tax for that period, plus the past 18 months of ownership (even if you weren’t living in the property during those 18 months). However, this period is being reduced to 9 months from April 2020, which may mean you subsequently trigger one of the exceptions requiring you to pay CGT on the sale of your main residence.

The situations which may result in you paying CGT on a main residence sale include, but are not limited to:

  • Dispose of part of the total plot – e.g. sell part of your garden
  • You run a business exclusively from the property
  • You develop the property prior to sale e.g. split it up, make flats or convert it to multiple properties
  • You let out all or part of the property and don’t live there yourself
  • You buy the property for the purpose of renovating it and selling it on but live in it during the period of renovation
  • You moved out of your property 18 months (reducing to 9) or more ago

Given that the period up to a main home sale is typically a period of change either related to work or personal circumstances, the reduction to 9 months is likely to catch out a significant number of people who have adapted the property or changed their use.

In addition the letting relief of £40,000 is being abolished, unless you are sharing the property with your tenants. However, this is likely to be a fairly unusual situation.

The rules on reporting any disposal or sale are also becoming stricter, and you must inform the tax office of what’s happened within 30 days. Furthermore a payment towards the CGT must be made within the same period of 30 days.

If you are considering selling a main residence or additional property, please contact us for more information. The new rules mainly all come into force from April 2020 and so there is still time to consider your plans and manage a disposal if it is likely to be financially advantageous to do so.