Capital Gains Tax (CGT) is a tax on the profit made when a taxpayer disposes of an asset that has increased in value. It is the amount of gain which is taxed, not the amount of money received. 'Disposing' of an asset includes selling it, giving it away as a gift or transferring it to someone else.
Depending on the asset disposed of, a taxpayer may be able to reduce any tax paid by claiming a relief. Every taxpayer has an annual tax-free allowance. This means that CGT is only payable on the total gain above that limit.
Most people who are selling their main residence do not need to worry about CGT because, broadly, the tax does not apply to the sale of someone's home. The rules can be complex and anyone selling a property would normally take advice from their accountant as to any tax liability rather than their lawyer. However, the lawyer acting on a sale should at least point out the possibility of CGT arising even if they do not give detailed advice.
People selling a property need to be aware of an important change to the CGT rules. From 6 April 2020, CGT incurred following the sale of a residential property must be paid within 30 days of the completion date. Failure to pay on time will result in interest and possible penalties. The new deadline applies even if no money has changed hands, e.g. when a property is gifted to someone else.
This 30-day payment limit is a substantial decrease on the current rules. Under the current system, a taxpayer would declare any capital gains on their self-assessment tax return. Any tax due is payable by 31st January following the year in which the game was made. This could give a taxpayer many months to pay their CGT bill.
Under the new rules, property owners who are selling a property to which CGT might apply will need to make a tax return to HMRC within 30 days of the date of completion.
Owners who are selling and involved with 'one-off' transactions might involve CGT are at greatest risk.
It is not necessary to submit a return to HMRC for disposals where no tax is due. Accordingly, the change will not affect who are selling their main residence, as this is not a transaction upon which CGT would arise in any event. However, if a taxpayer is in any doubt as to their position, they should obtain appropriate advice.
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