The taxation of residential investment property has, over the last few years, been targeted to make this form of investment less attractive. Recent changes include a 3% increase in the rate of Stamp Duty Land Tax; an increase by 8% on the rate of Capital Gains Tax (CGT) charged on gains; the withdrawal of the higher rate tax relief on interest paid on a loan to purchase residential investment property; and the introduction of an entirely new tax, the Annual Tax on Enveloped Dwellings, a flat rate annual charge on residential properties worth over £500,000, which are owned by companies or trusts. 

What’s new?

The latest change announced in this year’s Budget, to be introduced on 6 April 2020, deals with the reporting of capital gains and the payment of tax due on residential property. In most cases, a gain made on residential property is not subject to CGT, as it benefits from principal private residence relief. However, if the property was bought as a rental investment, or if the owner has more than one residence and the property being sold is not their principal residence, then any gain that arises will be subject to CGT. 

As the CGT regime currently works, the gain will be reported on the taxpayer’s return (due by 31 January in the tax year after the tax year in which the gain was realised), with the tax being due on the same day. 

From 6 April 2020, both a “residential property return” and the tax will be due 30 days after the completion of the sale; interest and penalties may be charged for late payment. If the taxpayer also fills in an annual tax return, the gain must also be reported on this. 

The return will be made via the HMRC website, and so the taxpayer should ensure that they are registered with HMRC well in advance of any reporting deadline.

Complexities of gain calculation

The calculation of a gain is often a complex matter; allowable costs may have incurred many years previously. It is also possible that any gain might be sheltered in the tax year by unused annual allowances or losses on other assets. HMRC has stated that the in-year return can include estimates of the tax due, however if the final tax due is more than the estimated amount, interest will be payable on the shortfall. 

If the property sale gives rise to an allowable loss, the taxpayer is not required to make the in-year return. 

Due to the uncertainties and complexities surrounding the computation it is advisable to consider the potential gain well in advance of completion, and if necessary to consider wherever a specialist tax advisor will need to be instructed. 

Further help and advice

Our team is on hand to liaise with you or your tax advisor to provide the information needed to calculate your gain arising, along with the date by which the property return needs to be made to avoid interest and penalties. Please get in touch with your usual Andrew Jackson contact, call (01482) 325242 or email enquiries@andrewjackson.co.uk