May 4th 2020 / BY: Wisteria

Thirty Days to Pay: How the New Capital Gains Tax Change Is Affecting UK Landlords

Over the past few years, landlords have been hit with a host of new regulations. Changes to mortgage tax relief and an increase in stamp duty have seen profits from buy-to-let properties dwindle, causing some landlords to sell up and quit the market. New legislation introduced this month could spell even more misery for landlords, with tighter controls being imposed on the filing and payment of capital gains tax. In this article, we’ll take a closer look at the rule change and see what affect it could have on UK investors.

Do I Have to Pay Capital Gains Tax When I Sell My Property?

If you sell a property here in the UK, you may have to pay capital gains tax (CGT) on any profits you accrue. This doesn’t usually apply if you’re selling your main home (unless you’re using it as a place of business or leasing out part of the property), but if you’re looking to offload a rental property or a second home, you’ll have to pay tax on a portion of the profits. The current rate of CGT is 18% for basic rate taxpayers and 28% for additional and higher rate taxpayers. Each of us has a capital gains tax-free allowance of £12,300, and you can also deduct certain essential costs, such as stamp duty and solicitor’s fees. That means a higher rate taxpayer, making a £50,000 gain on a buy-to-let-property would have to shell out £10,556 in CGT.

What Are the New Rules Governing Capital Gains Tax?

In the past, if you were selling a second home or a buy-to-let property, you wouldn’t have to pay tax on the gains until 31st January of the following tax year. That meant you could declare any taxable gains on your annual tax return and, depending on the date of the sale, pay nothing for up to 22 months. Under the new criteria (effective from April 6th), investors will have just 30 days from the sale of their property to declare their gains and settle their tax bill, and failure to do so could have serious implications, with thousands of pounds in penalty fines. So where does this leave UK investors?

How Can I Get the Most out of the Sale of My Property?

For many UK landlords, the new rule changes will have no immediate effect. If you’re happy with your buy-to-let portfolio and have no intention of selling, then it shouldn’t cause too many sleepless nights. If, on the other hand, you’re looking to consolidate your portfolio or ‘flip’ a property for a quick profit, there are a couple of things you can do to mitigate your costs:

• Set up a limited company – By letting and selling your properties through a limited company, you’ll pay corporation tax on sales rather than CGT. The current rate of corporation tax is 17%, and for higher rate taxpayers that could bring significant savings.
• Do your homework – With thousands of pounds in potential fines, the most important thing is to be prepared. Get your accounts in order well in advance of any sale and give yourself plenty of time to meet the new 30-day rule. The charges for late filing and late payment increase incrementally over time, so the longer you leave it, the more you’ll have to pay.
• Speak to a professional – By far the best solution is to consult a financial expert. Here, at Wisteria, our team of specialist property accountants can ensure you meet all the necessary criteria, avoid any potential fines and maximize your profits.

For more information about the recent changes to capital gains tax, or to find out how to get the most out of the sale of your buy-to-let property, speak to one of our financial experts today.