Thinking of selling UK residential property in 2020? The Treasury have announced details of some important taxation changes that you will need to consider

 

Following HMRC’s reforms in recent years regarding the deductibility of loan interest against rental profits and the removal of Wear and Tear Allowance, the UK Government have continued their overhaul of property tax legislation with these recently announced changes.

Since 6 April 2013, UK residential property ‘enveloped’ within a corporate structure has been subject to ATED-CGT (Annual Tax on Enveloped Dwellings).  In addition to this, since the introduction of Non-Resident CGT on 6 April 2015, most non-UK resident individuals have been within the scope of UK CGT for disposals of UK residential property. The provisions contained within Finance Act 2019 cast the CGT net even wider than they ever have done before.

The two main changes are:  

  • From 6 April 2019 the ATED-CGT scheme was abolished altogether, with companies now being subject to corporation tax on disposal of UK property, and an expansion to the CGT regime to bring commercial properties and ‘indirect disposals’ within the CGT net. However, this means that companies that were previously taxed using the ATED-CGT scheme will now be taxed at corporation tax rates, a 9% tax cut, and an extra two years rebasing.
  • From 6 April 2020 the payment date for UK CGT due on disposals of UK property will be accelerated for both resident and non-resident individuals, in an attempt by HMRC to ‘level the playing field’ between UK and non-UK residents who hold UK property.

These changes have inadvertently made the calculation of capital gains and losses unnecessarily more complicated with (in some circumstances) the introduction of a new rebasing date and different calculation methods for 'indirect disposals'.  If you are disposing of a UK property post April 2020, please do get in touch for a discussion around the new rules and methods of calculation.

The indirect disposal rules are perhaps some of the most complicated and contentious areas of new legislation and therefore, if you are non-UK resident and hold property within a ‘corporate structure’, please contact us for more information.

When will a CGT return be required?

From 6 April 2019, non UK residents will have to file a CGT return whenever there is a disposal of UK land, regardless of whether a gain or loss is made.  From 6 April 2020 all individuals (UK resident and non-resident) will be required to file a CGT return when a direct disposal of UK residential property has been made, but only where a gain is realised.  In both cases these CGT returns MUST be filed within 30 days of the completion date.  Companies will need to file a corporation tax return (reporting the gain) in line with their usual tax return filing deadlines.

Payment of Capital Gains Tax

In line with the new rules in respect of filing the CGT return within 30 days of the date of completion, payment of CGT is also payable by individuals on the amount defined by government as ‘notionally chargeable’, although until 5 April 2020 non UK residents can defer payment where a Self-Assessment tax return is filed.

There are two rates of CGT for individuals which are:

  • Direct disposal of residential property ...... 18/28%
  • Non-residential property and indirect disposals ...... 10/20%

Companies will pay at corporation tax rates.

‘Notional CGT’ is the tax that would be payable for the tax year, had the year ended at the date of disposal, and after the deduction of any unused capital losses that have been realised by the completion date of the disposal.  Any losses realised after the completion date cannot be taken into account until the next disposal, or CGT submission or self-assessment tax return.  For non-UK resident individuals only losses made on any previous disposals of UK land and property may be taken into account.

We recommend that you are aware of these new rules if you hold property in the UK, as some taxpayers may experience issues with cash flow where CGT has to be paid substantially earlier than it would be under the normal ‘Self-Assessment’ method.

If you think you may be effected by these changes in legislation, please get in contact for an initial discussion.