Changes to buy-to-let capital gains tax rules

In recent years, HMRC has raised concerns regarding the potentially lengthy delay between the property sale and the payment of the resulting tax bill. Depending on the timing of the sale within a tax year, the current rules give taxpayers anywhere between 10 and 22 months after the sale before the tax is due – the extreme case being a landlord selling a property in April 2018 who won't have to pay the tax until January 2020.

When HMRC changed the rules in April 2015 to bring non-resident landlords selling UK residential property within the scope of CGT, they took the opportunity to shift the cash flow benefit firmly in their favour, by requiring non-resident landlords to both report the disposal and pay the CGT within 30 days of completion.

This was clearly another step towards HMRC's aspiration for more “real time” payment of tax, and HMRC is now proposing to expand these rules to UK resident landlords from April 2020. This means that individuals and trustees disposing of a residential property will need to report and make a payment on account of the CGT within 30 days of the completion of the sale.

Using an example - if a landlord sold a property on April 20, 2019, and the sale completes on May 20, 2019, under current rules the resulting CGT would be payable by January 31 2021 (21 months after completion). But if that sale took place on April 20, 2020 and the sale completes on May 20, 2020, the proposed new rules would see the CGT become payable by June 19, 2020 (just one month after completion)

There is widespread concern that the new rules will drastically reduce the amount of time that landlords have to calculate and pay their tax bill. CGT calculations can be complex and therefore sellers will need to ensure they collate details relating to the purchase, enhancements costs and any periods of occupation well in advance of the sale.

Also, in-year reporting might only produce an estimated tax bill, one that can only be finalised after the tax year ends, when the full year's income and other capital gains and losses position is known – thus creating an increase in the compliance burden and the potential for duplication of time and costs.

An area of concern is the treatment of capital losses. Under the current HMRC proposals, taxpayers can only take into account capital losses which are known about at the time of disposal. So, if a property sale occurs early in the tax year, any subsequent capital losses (perhaps a sale of shares to reduce the tax due on the property gain) cannot be factored into the CGT calculation, which will mean the payment on account of CGT will be excessive.

However, the taxpayer cannot claim any overpayment until after the tax year has ended. The only time that capital losses realised after the property disposal can be taken into account is if the taxpayer disposes of further residential property in the same tax year.

When similar rules were introduced in 2015 for non-resident landlords, many failed to recognise their obligation and reported it on their Self Assessment tax return, triggering late filing penalties. It is hoped that HMRc take a “soft landing” approach in 2020.