The changes relate to:
- the amount of relief you can claim on profit made when selling a residential property that used to be your main residence
- the date on which you must report and pay the CGT
- the length of time you owned and then let out the house
Currently, if you sell a residential property that used to be your main residence, but you have since let it out, you can deduct £40,000 letting relief from the profit (capital gain) made on the sale. You will then pay CGT on the balance of the profit (less any applicable costs – see below).
From April 2020, letting relief will be abolished – unless you let out the property whilst you still lived in it – so you will pay CGT on the full profit made when selling your house (less any applicable costs).
Date the capital gains tax is reported and paid
If you sell a second property or a buy to let now, you will have to report the tax due on your individual tax return, and pay it, on the 31st January following the end of the current tax year (5th April). That means you will pay it on 31st January 2021.
From 6th April this year, if you sell such a property, you will have to report a provisional calculation of the tax owed, and pay it, within 30 days of the sale. If the amount you report is too much or too little, it will be rectified on your next individual tax return.
Final period of ownership
Currently, CGT is not payable on profit made when selling your main residence. That includes the last 18 months of your ownership if you have let out your home after you have lived in it. From April 2020, the letting out period will be reduced to nine months.
How much CGT will I pay?
CGT on second homes and buy to let properties is set at 18 percent for basic taxpayers and 28 percent for higher rate taxpayers. This is payable on profit made in excess of the CGT tax-free allowance which rises from £12,000 to £12,300 in April 2020. Couples can combine this allowance to £24,600 where they own the property jointly.
Can I deduct any costs from the amount of CGT I have to pay?
Yes, you can deduct legitimate costs incurred in buying and selling the property, such as stamp duty, certain improvements made whilst you owned the property, solicitor costs and estate agent/broker costs. You can also offset any losses made on selling other property for example.
If you want to discuss capital gains tax, or any issue relating to buying or selling your home, please contact our experts now using the details shown below. We continue to offer high-quality property services during the period of disruption resulting from the ongoing coronavirus (COVID 19) measures. Whilst our offices are closed to the public, in line with current government guidelines, we are happy to offer telephone or video/Skype meetings.