If home is where the heart is, homeowners are consistently at the heart of any Budget and last week’s Summer Statement proved no exception.
Prior to the Chancellor Rishi Sunak’s announcement last week there were whispers of a Stamp Duty Land Tax (SDLT) slash to be introduced from Autumn 2020.
Whilst a reduction in SDLT was enthusiastically received by many a delay until Autumn provoked general outcry as it would inevitably extend a downturn in an industry struggling with the negative effects of COVID-19.
However, potential buyers, estate agents and conveyancers’ hearts were all aflutter at the extension of the SDLT Nil Rate Band for residential props from £125K to £500K, which offered tax savings of up to £15,000. The rules apply to first time buyers and those replacing their “main” homes but also include companies.
The change is immediate, and buyers may benefit from the tax cut from 8 July 2020 onwards.
But what does this mean for vendors?
The anticipated and intended boom in the housing market means vendors will also benefit and taxpayers must consider their tax obligations, which have increased significantly from 2020/21 tax year onwards.
Where a disposal of residential property results in a chargeable gain (in broad terms when you sell the property for more than you paid for it), Capital Gains Tax (CGT) will be payable at a top rate of 28% (or 18% if you are not a higher rate taxpayer).
Traditionally, vendors would have 10-22 months to report this on their tax returns and pay the subsequent tax. Whilst this is still the case for sales of commercial property and other assets, the rules have changed for sales of residential property.
From 6 April 2020 where sales of residential properties result in a payment of CGT, the gain must be reported to HM Revenue and Customs (HMRC) within 30 days of completion. The payment of CGT is also expected within this strict timeframe. The gains are reported via HMRC’s Property Disposal Service.
In light of COVID-19, HMRC offered a sweet but brief relaxation of these rules and for sales of residential properties between 6 April 2020 and 30 June 2020, in that the 30-day deadline for the filing of the return was extended to 31 July 2020. The payment of tax however was still subject to the 30-day rule. Although this grace period was welcome it did produce a deadlock of sorts as HMRC do not issue the payment ref no /details until the return is filed! Therefore, despite the relaxation there is still significant pressure to file the return promptly!
If you sold a property between these dates and generated a capital gain, get in touch with a tax advisor to ensure you do not suffer the hefty fines and penalties associated with late payment.
Furthermore, vendors should note that the relaxation of the rules has now ended and sales of residential property from 1 July 2020 will be subject to the 30-day reporting limits.
The outward objective of the Property Disposal Service is to simplify and accelerate the payment of tax. HMRC wishes to collect its money sooner rather than later!
However, we believe that as this takes place midway through the tax year many vendors will unwittingly overpay tax and unless they also complete tax returns, they will not receive a repayment.
In many instances e.g. for landlords, company directors and those whose main income derives from investments, this is difficult to do as their incomes fluctuate year on year. There is also an additional layer of complexity to consider if the property was the vendor’s former home.
For these reasons we urge vendors to seek expert advice on the sale of their homes to ensure they report gains correctly and most importantly do not overpay tax!
Please contact one of our Tax Advisors as soon as you accept an offer on your home to not only ensure you comply with HMRC reporting and payment obligations but to maximise the reliefs available to you and minimise the tax payable.