‘Dramatic change’ in Capital Gains Tax could have impact on property market, warning

Second home owners, landlords and property investors are warned of a ‘dramatic change’ to the current Capital Gains Tax regime which will come into effect next April.

The new rules mean that anyone selling a property after April 6, 2020, where CGT is due will have to pay the tax on any gain within 30 days of completion.

At the moment, the CGT deadline is January 31, following the end of the year in which the sale was made.

The change will not affect sales of a main or sole residence where no CGT is due, but will affect buy-to-let investors and owners of holiday homes – plus others who may find themselves ‘accidental’ owners of a second property.

Hilesh Chavda, a legal tax specialist in Royds Withy King’s private wealth team, is urging owners of more than one property to carefully consider the impact that this might have.

He said: “The change could mean that sellers have to get funds in place to cover the CGT liability before the sale is completed as 30 days is not very long at all.  This could be a particular issue where there are large historic gains.

“Landlords, investors and second home owners thinking of selling one or more properties in the next couple of years are well advised to get professional advice at an early stage to make sure they understand and can meet their liabilities.

“This will no doubt impact cash flow so it will be interesting to see what effect this has on the residential property market. This is particularly true where sellers are also buying and have to pay Stamp Duty Land Tax within 30 days of competition.

“Many may well be tempted to offload any surplus or under-performing properties in advance of next April, but whether they can do this successfully or not in today’s suppressed market remains to be seen.”

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4 Comments

  1. seenitall

    Can someone enlighten me.

    On completion the funds are transferred for the sale.   Why would paying HMRC within 30 days of completion be an issue?

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    1. JMK

      You have assumed that there is large capital to be transferred.  If someone has remortgaged at a higher value than purchase price they may not have enough equity left to pay the capital gain tax and would mean that they’re in the poo.
       
      Now they only have a short time to pay the tax.  Before it may not have been a problem because, say, they may be selling off other assets that would provide them with enough capital, or perhaps provide a loss to offset.

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      1. Anonymous Coward

        Thanks JMK.   I sat here for a few seconds and like seenitall I initially thought “Boohoo, I’ve got megabucks in my bank account and the tax man wants some of it” but never considered the issue of whether or not additional lending had been taken out on the property.

        Mind you, most sensible BTL landlords getting a reasonable interest rate will have an LTV of 75% on remortgage which should be enough to cover most of the CGT when you deduct expenses and add in fees.

        But it does mean that if you keep revaluing your portfolio and adding to it by remortgaging on an interest only basis at 75% LTV, the only thing you will ever achieve is lining the government’s coffers.

        Given that it only takes a poor paying tenant to completely wreck an income stream it’s no wonder that a lot of landlords are thinking of leaving the PRS at the moment.

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  2. TwitterSalisPropNews

    Try getting back stamp duty from HMRC in 30 days…or even the 14 days solicitors need to pay it

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