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Time to get your house in order?  - Autumn Statement

The Autumn Statement proposes acceleration of the payment date for Capital Gains Tax (CGT) on residential property to 30 days after completion. A few things to note in relation to this – the most obvious being to highlight that a majority of disposals of residential property are not subject to CGT by virtue of the Principle Private Residence relief (PPR). There is also a question of complexity being created.  The standard date that triggers a capital gain is the date of contract.  This new provision dictates that the payment date for any tax due will be 30 days after completion.  A delayed completion date could create a disposal and payment date years apart.  These points aside, how exactly will this work in practice?

Example

A property owned by Mr Smith that is let but was previously his main residence for many years and is sold in May, very early in the tax year.  Mr Smith has a diverse spread of investments and may have some capital losses available to him.  He has decided to sell the property at a profit and has been advised that payment of CGT is due 30 days after completion – but on what amount? He will need to calculate what proportion of ownership is covered by PPR and how much is left chargeable. Of the residual amount he may be able to cover some of this with losses but he does not know how much yet. Should Mr Smith anticipate a lower amount due? If he does, will there be interest and penalties to pay if he gets that one wrong? If he takes a prudent approach paying the higher sum and waiting to see what his position is on overall capital transactions at the end of the tax year (some 11 months later), he may end up paying more than he needs to and then having to wait for a refund.

The above example is not an unusual profile. 

How will it work in practice?

Another point; HMRC’s resources are scarce. Whilst HMRC have the power to review transactions at the Land Registry, will they now be attempting to contact taxpayers selling residential property to enquire as to whether or not they have a gain they ‘forgot’ to declare?  There is currently no way of telling which disposals will give rise to a tax charge so there could be a lot of wasted effort. 

There is time for HMRC to consider how this will work as well as making sure the digital support system is up and running as the measure does not come in until April 2019.

The combination of this forthcoming accelerated payment requirement, the additional Stamp Duty Land Tax charge on buy-to-let property and limits on tax relief for interest is certainly making second properties a less attractive option than it used to be.

If you would like to discuss any aspects of the new legislation, please contact Jacqui Gudgion or your usual Mercer & Hole contact.

 

 

Date: 26th November, 2015
Author: Jacqui Gudgion

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