Parts Of Housing Market On Hold But New Rules Affect Selling Second Homes
The Government has pressed ahead with changes to Capital Gains Tax (CGT) despite the coronavirus lockdown, putting those selling homes at risk of an unexpected tax bill.
The changes to the reporting of CGT on the disposal of UK residential property came into effect from Monday 6 April, along with certain changes to private residence relief (PRR) including the reduction in the final period exemption from 18 months to 9 months.
If a UK resident now sells a residential property in this country and doesn’t qualify for full Private Residence Relief, they have 30 days to tell HMRC and pay any money owed.
Government guidance as a result of Covid-19 was to only proceed with conveyancing transactions where compatible with social distancing rules. Where the exchange of contracts has been delayed to beyond 5 April, those selling homes could find that not only are they now liable for more CGT than they thought as a result of the rule changes for PRR, but also have to file a CGT return within 30 days of completion.
HMRC has launched a new online service to make it easier to report the sale and pay any owed money, but tax experts at law firm Irwin Mitchell say the coronavirus pandemic and UK lockdown puts many selling second homes at a disadvantage at best, and hit with a big tax bill at worst.
Expert Opinion“The impact of Covid-19 could see those selling homes not only facing a delay but an unexpected tax bill as a result when they can finally sell.
“Those selling homes therefore need to be very aware of the new situation around selling second homes so they can avoid getting caught out by HMRC and being landed with a big tax bill.” Liz Beadsley - Chartered Tax Advisor & Manager - Partner
According to Irwin Mitchell experts there is also an ongoing risk to those currently going through a divorce; with the country on lockdown and house completions being delayed, divorcing couples could also be landed with unexpected tax bills.
Liz continued: “Covid-19 is likely to have an impact on many financial settlements on divorce. Couples in the process of divorce could find that delays in being able to reach a financial settlement or in being able to sell a former marital home could give rise to an unexpected tax bill, as well as the need to complete a CGT return and pay the CGT within 30 days of a sale or transfer. The tax impact of the delay will need careful consideration in financial settlements.”