_The changes to Capital Gains Tax in 2020 that rural property owners need to know

For homeowners, their elected Principal Private Residence (PPR) Relief is a major benefit in the case of lifetime disposals, as no Capital Gains Tax (CGT) is payable.

The PPR includes gardens and grounds up to 0.5 of a hectare (about 1.23 acres). (Larger areas than this can be justified in certain cases if required for the ‘reasonable enjoyment’ of the residence.)

However, Capital Gains Tax does apply on the gain in value of the non-permitted area, from the exchange date at purchase to the exchange date at sale. This includes everything outside the permitted area such as a let cottage, holiday let, commercial workshop and agricultural land on a Farm Business Tenancy or grazing licence. Any commerciality is excluded from the permitted area. 

The current rate of Capital Gains Tax is 28% based on the chargeable gain.

At the moment, if you sell in the tax year 2018/19, any tax is payable by 31 January 2020 as part of the annual self-assessment cycle. This represents a 10 to 22 month payment delay.

HM Revenue & Customs (HMR&C) has had a consultation titled: CGT – Payment window for residential property gains.

The proposal is that from April 2020, Capital Gains Tax will be payable within 30 days of the sale, gift or disposal being completed.

(The date of completion is normally the day when the property conveyance takes place, not the date of exchange.)

The draft legislation is in the Finance Bill and requires approval by the House of Lords before it is enacted. 

If the gain is fully covered by Principal Private Residence Relief, then no tax is payable. 

Vendors and donors will need to make a special payment on account return to HMR&C confirming:

• The disposal

• The amount payable

Retention of sufficient records and collation to calculate the gain, for example purchase price, subsequent acquisitions, any improvements and professional fees, will need to be available so a valuer can calculate the gain and any apportionment between permitted area and non permitted area. 

There are the practical considerations of making accurate calculations within 30 days and ideally a valuer needs to be instructed at least at the start of the sale process before the property is offered for sale so there is enough time to undertake the valuation and apportionments. 

Vendors and donors will also need to have the necessary funds to pay the tax within 30 days.

It is important to be prepared, because late filing penalties and interest will apply in cases of failure to pay within 30 days.

This shortening of the timescale for payment of Capital Gains Tax will remove the current benefits of delayed payment and put pressure on vendors to be very focussed on organising their records and an assessment before sale. 

If you would like to discuss these changes to Capital Gains Tax, and how they may affect you, please get in touch.