Will I be hit by CGT rule change on my property sale?

I was left a property by a relative last year and was close to completing a sale at the end of March. Due to concerns about Covid-19, my buyer asked to delay, which I agreed to. I now understand that following a tax change that took effect from April 6, I will need to pay capital gains tax within 30 days of the sale, which will be difficult and I’ll need to resolve probate issues. What steps do I need to take following completion?

Helen Jones, partner at accountants and business advisers BDO, says dealing with probate can be complicated as well as emotionally challenging, so you should consider seeking professional independent advice. There are a few aspects to consider in respect of reporting capital gains tax (CGT) on the sale of the property.

First, if a CGT liability arises on the sale of the property, a 30-day window for reporting the property disposal and paying any CGT due would commence from the date of completion of the transaction as opposed to the date of the exchange of contracts. Therefore, a proportion of the funds received on the sale could be allocated to settle the tax due to HM Revenue & Customs (HMRC).

To allow taxpayers to familiarise themselves with the new reporting rules, HMRC has said no late filing penalties will be issued for CGT returns and payments received up to July 31 2020. However, late payment interest will be charged for payments of CGT made later than 30 days following the date of completion.

Helen Jones, partner at accountant and business advisers BDO © Handout

In calculating whether there is a capital gain or loss, you can deduct certain costs and expenses from the sale proceeds. In this case, the property “cost” will be equal to its probate value at the date of death. Expenses such as conveyancing and estate agent fees and improvement costs to the property borne by the executors are also deductible.

If a capital gain is realised, the executors have a CGT annual exemption in the tax year of death and the following two tax years, which may be available to offset against gains and reduce the amount of CGT payable depending on sales of other estate assets. The annual exemption for the 2020-21 tax year is £12,300.

The estate will need to be registered with HMRC to complete the return form, so this is something you could do following exchange of contracts. The gains will also need to be reported on the estate’s annual self-assessment tax return, if one is completed.

Finally, where the deceased person held the title deeds solely in their name a grant of probate is generally required to enable the executors to complete a sale. However, in certain circumstances a property can be sold before probate is granted, for example where the property has joint owners.

If you become stuck during the process, HMRC can answer queries on its CGT helpline at 0300 200 3300.

Hema Anand, partner at Bircham Dyson Bell Pitmans, says that by agreeing to complete after April 6, which is when the new CGT rules came into force, you would have been required to pay any CGT due within 30 days of completing the sale of the property.

However, owing to the impact of Covid-19, HMRC has agreed that it will charge no penalties on disposals made between April 6 and June 30, if these are reported late and the tax is paid late. Essentially, this means that the report must be submitted to HMRC and CGT paid by July 31 2020. Currently, for disposals after June 30, the normal 30-day time limit will apply.

Practically speaking, you have extra time to ensure your records (such as costs of any improvements and certain costs, fees and expenses) are to hand and up to date in order to accurately calculate the CGT. You may require a professional valuation or details of your income to ensure that the correct CGT rate is applied.

Hema Anand, partner at Bircham Dyson Bell Pitmans © Jennifer Evans

Obtaining a valuation in the current climate may be difficult until restrictions have been lifted. The potential impact of Covid-19 on the residential property market may even mean that the gain is small enough and covered by your individual annual exemption or other carried forward losses, for example.

Additionally, the new changes to CGT mean that lettings relief (a relief of up to £40,000 of any gain if you sold a residential property which was at some stage a main residence but had then been rented out) is largely no longer available.

Another significant change is where the property had been your main home, you are not required to pay CGT for the period during which it was your main residence plus the past 18 months of ownership, even if you are not living in the property during those 18 months. The period has now been reduced to nine months. 

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to [email protected]

Our next question

I am in the middle of an acrimonious divorce, but have two young daughters and so am keen to avoid costly litigation while also resolving the financial aspects as quickly as possible. What are the cost-effective alternatives to court for a divorcing couple to deal with their financial arrangements?

Source Article

Next Post

Over 30m workers in Europe turn to state for wage support

More than 30m workers in Europe’s five biggest economies have applied to have their wages paid by the state via short-term leave schemes designed to stop unemployment skyrocketing in the coronavirus crisis. The rapidly rising figure for the number of furloughed workers in Germany, France, the UK, Italy and Spain […]