Selling an investment property in 2020

If you are considering whether to sell an investment property in the New Year there are potential tax changes which may dictate that your New Year resolution should, in this year of all years, be acted on, rather than festering on your wish list.

From 6 April 2020 there are 3 proposed changes which will significantly increase Capital Gains Tax paid and/or accelerate the date that any tax has to be paid.

The changes will bite particularly on those selling property which they have retained as an investment or where you may have divorced or separated and the property is no longer your main residence.

capital-gains-tax


Letting Relief

Letting Relief allows up to £40,000 extra relief against any chargeable gain that would otherwise be payable where a property which you have let, although no longer your main residence, was your main residence at some stage in the past.

Final Period Exemption

If you are selling a property which was at some stage your main residence then, even if this is no longer your main residence, the last 18 months of ownership in most cases qualifies for private residence relief.  From 6 April 2020 that period will be reduced to 9 months except in specific circumstances.

The Time for Payment

At present you only need to notify gains made when you file your tax return and pay tax on 31 January after that tax year, even if the actual disposal of the property may have occurred up to 22 months beforehand.

Under the new arrangements, Capital Gains Tax on residential property will have to be notified and paid within 30 days of the sale completion date.

The Financial Effect of the Changes

Taking by way of example the sale of a property purchased in 2005 for £400,000.  If you were to sell that property for £700,000 on 5 April 2020 there would be a potential gain of £300,000.  If you had lived in the house for say 10 years and let the entire property for the remaining 5 years, the effect of available reliefs would mean that the Capital Gains Tax payable could amount to £5,040.

If on the other hand you were to sell the property just one day later then the reliefs available would not apply to the same extent and the calculation based on the facts above would be £20,440, an increase of £15,400.

To add insult to injury, you would also have to pay the tax by 6 May 2020, as opposed to January 2022.

If you are considering selling you will appreciate from the above that now is the time to act.  The national average timescale for sale of a property from agreement of the sale to completion is still 10-12 weeks. Although the process should be much quicker than this, delays in processing mortgage applications and (in some areas) obtaining searches does still mean that the matter may be delayed.

We are indebted to Davis Grant, Chartered Accountants based in Ilford, for the tax advice on which this article is based and the example provided.  It is important to obtain not only expert legal advice but also expert accountant’s advice whenever you are considering selling property which is not your main residence.

For more information, Email Tony