Don’t get caught out by Capital Gains Tax changes

Lucy Mangan - Menzies Accountant

Lucy Mangan – Property sector specialist

The UK residential property sector has already seen several changes to the tax regime in recent years, but more are coming!

From 6 April 2020 the changes below will apply to the way both capital gains are calculated and tax paid.

The rules apply to the disposal of residential properties owned by individuals.

Calculation of capital gain on disposal of residential property

Two changes may be relevant if a property is sold which at some stage was the individual’s main residence.

Letting relief: £40,000 relief potential lost 


Currently if you sell a residential property which was at one time your main residence but has then been rented out, it is possible to deduct ‘letting relief’ up to £40,000 from any capital gain. 


This relief will no longer be available unless the letting of the property occurred while the owner was living in the property.  

This relief will therefore no longer be available to the vast majority of disposals.

Reduction in taxable gain due to final period of ownership


Currently the last 18 months of ownership of the property are treated as qualifying for principal private residence (so this part of the gain is exempt from tax). 


From 6 April 2020 tax relief will only be provided for the final 9 months of ownership therefore halving the relief. (Note the rules used to allow relief for the last 3 years of ownership but this was reduced to 18 months in 2014).  

Date capital gains tax payable to HMRC

This change applies to all disposals of residential property where capital gains arise including buy-to-let and second homes.


Currently any capital gains tax is recorded on an individual’s personal tax return and tax is payable on 31 January following the end of the tax year (the 5 April). 


From 6 April 2020, within 30 days of completion of sale, it will be necessary to submit a provisional calculation of the gain to HMRC and pay the tax that is due.  Ultimately the gain will still be recorded on the tax return and any over or under payment of tax dealt with.  If tax is overpaid then this will not be repayable until the tax return is submitted.

What does the above mean?

Using a simple comparison example:

  • Mr X owns a residential property which he acquired for £150,000 in April 2000.
  • Mr X lived in the property from April 2000 until April 2008 when he moved in with his girlfriend. 
  • The property was rented out from May 2008 and continues to be rented out. The property is to be sold and has a current market value of £750,000.

Comparison of tax position if sells pre or post 6 April 2020:

Pre 06/04/2020Post 06/04/2020
Original Cost(150,000)(150,000)
Period of main residence(240,000)(240,000)
Final period of ownership(45,000)(22,500)
Letting relief(40,000)
Chargeable Gain (excluding annual exemption)275,000337,500
CGT due @ 28%77,00094,500
Tax payable by31/01/202130 days post completion

As can be seen these changes not only substantially increase the capital gain payable but dramatically reduce the time required for this payment to be made to HMRC.

What can be done?

A number of planning aspects can be undertaken to mitigate the above:

Sale of properties prior to 6 April 2020

If you are thinking of selling, it may work to your advantage to bring this forward. The above example illustrates the potential benefit, although individual circumstances should be reviewed.

Transfer property ownership

A married couple putting a property into joint names can maximise allowances and potentially lower the rate of CGT. However, if there is a mortgage attached to the property, you should not overlook stamp duty land tax costs

Gifting property to a member of the family

If you are thinking of any gifts to family members, your decision as to whether this should be brought forward to pre 6 April 2020 should be considered for similar reasons.

Make sure all information is easily available

Ensure that all the information (e.g. original cost, any improvement costs) is available on which to calculate the capital gain as accurately as possible. This will ensure the funds are ‘ring fenced’ and also avoid any overpayment of tax within the 30 days


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