What are the changes to the buy-to-let capital gains tax rules?

What are the changes to the buy-to-let capital gains tax rules?

15th Nov, 2018

In recent years, the HMRC has raised concerns regarding the potentially lengthy delay between the sale of a buy-to-let property and the payment of capital gains tax (CGT), which has led to them working towards a more ‘real time’ payment of this bill.

Here, we take a look at the changes in more detail…

What is CGT?

When landlords sell a buy-to-let residential property, they are required to pay this tax.

A person earn £11,700 before paying any tax, and for anything above this, basic-rate tax payers will be charged 18% on the amount. If deciding to invest the money in shares or bonds then a lower rate of 10% applies.

When do landlords pay CGT?

Currently, the payment can be postponed until a landlord files their tax return for the year, which could be more than 22 months after the house is sold.

In April 2015 the rule was changed for non-resident homeowners selling UK properties, where they had to both report the disposal and pay the CGT within 30 days of completion.

HMRC are now proposing to expand these requirements to all UK resident buy-to-let house owners by April 2020 – meaning the CGT will have to be paid within 30 days. To complicate things even further, under the current system the clock starts ticking to pay the bill once contracts have been exchanged, but under the changes it would start once the sale has been completed.

There is widespread concern that the new rules will drastically reduce the amount of time that landlords have to work out and pay their tax bill. CGT calculations can be complex on their own without this additional pressure, and sellers will need to ensure they collate details relating to the purchase, enhancements costs and any periods of occupation well in advance of the sale.   

We hope that this has clearly outlined the changes, so that you can better understand them when they come into effect over the next couple of years. Landlords can expect more news and shifts throughout the tax year, so keep your eyes peeled!

If you would like any additional property advice, please feel free to get in touch with one of our property experts in the Applegate office.  

View all posts by Laura Anne Townson

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