From April next year, the way in which gains are taxed on some properties means that taxpayers will have only 30 days to file their Capital Gains Tax (CGT) return and make an advance payment towards their tax bill where CGT is due.
This differs drastically from the current rules, which allows people to pay CGT on the disposal of a property up to 22 months after the sale as part of the self-assessment cycle.
Most people will not pay CGT on the sale of their main home thanks to tax relief, but some larger properties and second homes do.
Lettings Relief will also be restricted at the same time, which will mean that property owners will have to be sharing the occupancy of a property with their tenant at the point of sale to benefit from tax breaks.
Dr Anjulika Salhan, Director at Birmingham and Droitwich-based Salhan Accountants, said: “Taxpayers who let a property that either is currently or used to be their main residence can currently claim Lettings Relief of up to £40,000 when they sell that home - with up to double this amount being available to a married or civil partnered couple.
Under the new system, they will have to pass a shared occupancy test to benefit from this relief. They will have to prove that they were living in the property at the same time that it was let and this can be difficult in a number of different situations.
This has the potential to affect a growing number of ‘accidental landlords’, i.e. those people who have lived in a house for years, but who have decided to rent out their home before they sell it.”
Key changes also come into effect next April in respect of Principal Private Residence Relief (PPR), which will shorten the Final Period Exemption (FPE), she added.
This means that landlords will be exempt from paying CGT on the gains made in the final nine months of ownership, instead of the final 18 months, as is currently the case. There are however no changes to the 36 months currently available to the disabled or those in a care home.
Anjulika added: “These changes to the taxation of property come after several other changes, including restrictions to relief on mortgage interest, which have made property investment less attractive to many people. It seems likely that these steps will also restrict the number of landlords and investors out there, as it will make the process of selling an investment property less tax efficient.”
