Property investors could be caught unawares by April CGT tax rule change

Author: Rent Guarantor


As the new tax year will soon be here, property investors have some tax rule changes to contend with. There are three that are set to come in and one of them in particular could catch out many property investors, particularly those who are selling up and exiting the industry.

There have been numerous tax changes that property investors have had to cope with in recent years. However, these upcoming ones were delayed until 2020, after it was felt not enough landlords were aware of them. But those fears have been raised again by industry experts in an attempt to highlight the new rules.

Capital Gains Tax reporting and payment changes

One tax rule change that could have a major impact is the period property investor sellers will have to calculate and pay their Capital Gains Tax (CGT).

From April 6 2020, any property investor who sells an investment property will be required to submit a preliminary calculation and settle their CGT bill within 30 days of the sale completion. Right now, they have between 10-22 months to close the sale, calculate and submit their CGT bill and make the payment. This will change in around one-months’ time and there is concern that only few property investors are aware of that impending change.

“From 6 April 2020, all CGT liabilities will need to be settled in just 30 days of completion of a sale. That leaves very little time to calculate the tax to be paid, report the gain, and pay tax,” said James Cook, a partner at Law firm Collyer Bristow. “It is likely to catch out many second homeowners and investors who have either failed to plan for the tax charge or do not have the available cash.”

The one positive thing about the change is that the way in which CGT is calculated won’t change – just the timeframe it must be paid by. However, other tax rule changes could affect the amount of relief property owners can claim and this could prove an unexpected disappointment.

Some landlords could lose out up to £40,000 in lettings relief

Also, from April 6 2020, Letting Relief will no longer be available for people who sell a rental property that was, at one time, their main residence. Right now, it’s possible to claim up to £40,000 letting relief from your CGT bill when you sell an investment property that you used to live in as your main home.

But from April 6, Letting Relief will only be available where the property was let out when the main resident was also living at the property.

Another change is that the taxable gain due to final period of ownership will be further reduced. In 2014 it was reduced from 3 years to 18 months and from this April, it will be halved again to 9 months.

That means under current rules, the amount your property has gained in the final 18 months of ownership of your rental property that was once your main residence, is exempt from your CGT calculation. This will be cut to CGT exemption for the final 9 months of ownership.

Whether you’re an experienced property investor or an accidental landlord, the upcoming CGT related changes could affect you if you’re planning to sell any of your properties. That means its important to take the right advice and ensure you’re claiming the right reliefs and making tax payments on time.