April 1, 2020

Second homeowners, property investors and divorcing spouses to be hit by changes to Capital Gains Tax, warns law firm Royds Withy King

The change is little understood by second homeowners and investors and leaves then open to stiff penalties, warns law firm Royds Withy King.

The change will also affect divorcing spouses giving property to each other and individuals giving property away. Under these circumstances there will be no sale proceeds to pay the CGT and it is, therefore, crucial that individuals ensure that they are in a position to pay the CGT liability prior to giving the property away.

Royds Withy King Private Client Partner Tom Gilman said: “Under the current rules, anyone selling a second home or even giving a share of a property to their divorcing spouse or children has until 31 January in the following tax year to settle any CGT liability, giving them potentially up to 22 months.

“From 6 April, all CGT liabilities will need to be settled in just 30 days of completion of a sale. That leaves very little time to calculate the tax to be paid, report the gain, and pay tax. It is likely to catch many second homeowners and investors short.”

The CGT rates for property will remain the same at 18% for basic rate tax payers and 28% for higher rate tax payers. Individuals will need to determine which threshold they fall under at the point that the CGT liability arises and make adjustments by self assessment, the following January, if necessary. The CGT allowance will increase from £12,000 to £12,300 for individuals and representatives and from £6,000 to £6,150 for trustees of settlements.

Late payment of CGT will leave individuals facing an immediate £100 fine, plus an additional £10 a day up to £900. If still unpaid after six months, the liability increases to 5% of the tax due or £300, which is ever the greater.

Tom Gilman adds: “The changes were first announced in 2015 but have been pushed back as HMRC was concerned that second homeowners and investors were not aware of the changes. From conversations with our clients, it appears that they are still not fully aware of the implications of the change.

“Our advice to second homeowners and investors is to calculate liabilities before any sale so as to avoid any unnecessary penalties.”

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