Her Majesty’s Revenue and Customs (HMRC) has been making major changes to the rules related to the declaration and payment of the Capital Gains Tax (CGT). The new changes are to affect millions of taxpayers across the UK, with landlords and property owners set to be affected the most.
What Is Capital Gains Tax?
You are liable to pay Capital Gains Tax or CGT if you sell an asset such as your second home, land, business, shares, family heirlooms etc. for money. The amount of tax that you are liable to pay depends on your annual income. When selling a residential property, you could be subject to 18% or 28% CGT, on other assets you pay 10% or 20%.
What Do the Existing Rules Say?
HMRC rules state that if an individual person makes any capital gains, he/she should report it based on self-assessment. This means that you must declare any property sale on which you made capital gains between 6th April 2019 and 5th April 2020 on your tax returns, and any tax incurred is liable to be paid by 31st January 2021. So, for example, if you make the sale of a property on 6th April 2019, you have up to 21 months of time to pay the liable tax amount. The new rules coming into effect for the financial year 2020/21 are about to make major changes to this system.
What Do the New Rules Say?
Post 6th April 2020, the Capital Gains Tax incurred on the sale of a property should be paid within 30 days of the sale. Non-compliance will lead to HMRC imposing potential fines and interest. Even in events where no exchange of money has taken place between two parties, for example, transferring the ownership of a property to one’s kin, the new rules still apply.
The new rules have made CGT payable for the gains you make through the sale of a residential property both within the UK and overseas. Also, the deadline has been reduced to just 30 days from the completion of a sale of a property. You will have to submit a provisional calculation of the potential gain you will be making and pay the estimated value, all within the deadline of 30 days. You must also declare the actual capital gains made on your tax returns. If the actual gains are more than the provisional amount submitted, you are expected to pay the difference.
If you are not already a part of the self-assessment system, there is no requirement to register for declaring capital gains. But you have to abide by the 30-day provisional declaration and payment rule. You can review your provisional declaration, and pay the differences after the tax year in which you made the capital gain. All these changes do make a cause for concern, but hiring a professional would go a long way to easing them.
Some Tips to Help You Estimate CGT
The first and foremost step that you have to do is to calculate your yearly taxable income. It will help you determine how much CGT is payable at the rate of 18% and 28%. You can also bring forward your losses from earlier years and include them along with the losses made in the same financial year during which the gain was made. If you are looking to sell any other assets that you know for sure will make a loss, it’s best if you do it before you make the transaction that will bring you gain. This will help bring down the amount of CGT that you would have to pay.
Public Awareness about the Rule Change
HMRC has been trying its hardest to create awareness about the new rule change. Still, a recent report released by the organisation shows that most of the people who could be potentially affected by this rule change are not properly aware of the turn of events. Customers who are at the greatest risk are those who are selling a property for the first time or those who are making a ‘one-off’ transaction. People who deal with real estate sales on a consistent basis are most likely to be aware of the changes and are also most likely to seek professional help.
Should You Be Concerned?
The new rule changes are drastic in comparison to other yearly revisions. Also, the new rules do not allow people to amend their provisional estimates. To avoid any complications, it is recommended that you hire a professional CGT Experts like DNS Accountants. Our sole intention is to help our customers pay the lowest amount of tax possible. We take pride in helping our customers save their hard-earned money. To know more about our services, call 020 3500 2646 or visit our website.