Changes to Capital Gains Tax on buy-to-let properties, second homes or holiday lets

Capital Gains Tax on property is set to change soon (6 April 2020). Professional landlords -and those who own additional properties as well as their own main homes – need to be aware as these changes could affect the amount they earn when selling their buy-to-let properties, second homes and/or holiday lets.

There are three main proposed changes to legislation around Capital Gains Tax:

Capital Gains Tax liability

Currently, when someone sells a property that’s not their main residence, the gain, minus costs associated with the sale are reported on their annual tax return. If they’re then liable to pay Capital Gains Tax, these need to be paid by 31 January; following the end of the tax year when the property was sold.

From 6 April 2020, people will need to submit a residential property return and make the payment within 30-days from completion of the sale. This 30-day rule will only apply to UK residential properties sold on or after this date – and only where Capital Gains Tax is chargeable.

Private residence relief

Currently, when a property has been someone’s main residence for the last 18 months of ownership, this is treated as the principal private residence period and exempted from tax.

From 6 April 2020, this period will be reduced to 9 months.

There will be no changes for people who move into a care home or have a disability. The relief period will remain the same and be the last 36 months of ownership.

Lettings relief

Currently, if a property was someone’s main residence at any point of ownership, even with periods of being let; people are entitled to claim a Capital Gains Tax relief of up to £40,000 of any gains. If the property is jointly owned and not with a spouse, people would be entitled to tax relief on gains of up to £40,000 each.

From 6 April 2020, this relief will only apply if the property was let out whilst the owner was living in it.

What is Capital Gains Tax?

Capital Gains Tax is a tax paid on the profit made from an asset sold or disposed of, which has increased in value. It is the increase in amount of value that is taxed – not the whole sale or disposal cost.

For example, someone bought a house for £100,000 and then sold it for £150,000. This means a gain of £50,000 is made – the amount which would be subject to tax.

What Capital Gains Tax is paid on

Capital Gains Tax is paid on the gain made on, what are known as chargeable assets, which include:

  • Business assets
  • Property that isn’t someone’s main home
  • Someone’s main home if it’s been rented out, used for business purposes or is a very large property
  • Most personal possessions, apart from cars, which are worth £6,000 or more
  • Shares that are not in an ISA or PEP

It is possible to reduce any Capital Gains Tax paid by claiming a relief. If a gain has been made on an asset jointly owned with someone else, that person would only have to pay Capital Gains Tax on the actual amount gained.

When Capital Gains Tax doesn’t have to be paid

Capital Gains Tax is only paid when the total amount earned every year is more than an annual tax-free allowance.

Capital Gains Tax also doesn’t have to be paid on:

  • Gifts to a spouse (wife, husband, civil partner)
  • Gifts to charity
  • Lottery, pools or betting winnings
  • ISAs or PEPs
  • UK Government gilts and Premium Bonds

Capital Gains Tax allowances

Capital Gains Tax only has to be paid if gains add up to more than the tax-free allowance – or Annual Exempt Amount.

  • £12,000
  • £6,000 for trusts

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