On July 11th, the government confirmed the changes it was making to capital gains tax (CGT) in the Finance Bill (2019/20).

In the draft legislation, the government announced it will restrict the availability of private residence relief (PPR) for homeowners by cutting the final exemption period from 18 months to nine months from April 6th 2020.

The shortening of the final period is also due to occur at the same time as letting relief will be restricted and that further, existing rules will take effect which will require UK resident individuals who sell any residential property where CGT arises to both report the disposal and make a payment on account of the tax within 30 days of completion.

Ugo Arinzeh, managing director of Onyx Property Consultants, says: “From a practical perspective it makes owning a second property or investment property that much less advantageous and will further push private investors to sell or to avoid becoming landlords altogether.

“As a property agent, and also a property investor, it is deeply distressing to see this government continue to penalise residential landlords, many of whom own property as a way to invest in their future and have a retirement income.”

Tax breakdown

Mark Homer, co-founder of Progressive Property, adds: “Landlords and second home owners who are higher rate taxpayers will continue to pay 28% (and 18% for lower rate) CGT from this year when CGT rates charged on gains for most other asset types drops to 20% (and 10% for lower rate) taxpayers.

“As a property agent, and also a property investor, it is deeply distressing to see this government continue to penalise residential landlords, many of whom own property as a way to invest in their future and have a retirement income.”

“As part of a series of new taxes to reduce demand for properties purchased for buy-to-let (BTL) the government appears to having its ‘cake and eating it’ after introducing the new Section 24 tax on turnover to reduce the number of investors in the market. Now many of these investors looking to get out will be taxed more for doing so versus selling other assets classes which are pregnant with gains.”

These CGT changes could also go as far as putting off buy-to-let investors altogether. Natasha Collins MRICS property investor, chartered surveyor and university lecturer, says: “BTL can seem pretty terrifying at the moment. By 2021 you won’t be able to deduct any of your mortgage interest payments from your rental income on any residential properties you hold in your own name. CGT has also changed for non-residents of the UK, who will have to pay CGT at 28% on residential property and 20% on commercial property,  regardless of whether they own it in their own name or a company and  for UK residents as of 2020, you will be required to declare any CGT  payable within 30 days, rather than wait until the end of the tax year.”

Disappointed with the government

Industry body, the Association of Accounting Technicians (AAT) is disappointed with the government’s actions, and believes it will have a wider impact and will affect individuals who are simply struggling to sell their home.

Jon Stride, co-chair of the ATT’s technical steering group, said: “Given the current economic uncertainty, the reduction to nine months from April 2020 could hit taxpayers who need to relocate while they are still struggling to sell their original home. It is difficult to imagine that a nine-month period is sufficient time, or that April 2020 is an appropriate time to introduce any reduction.”

“The shortening of the final period is also due to occur at the same time as letting relief will be restricted (another measure confirmed today) and that further, existing rules will take effect which will require UK resident individuals who sell any residential property where CGT arises to both report the disposal and make a payment on account of the tax within 30 days of completion.

Stride adds: “The reduction of the final exemption period to nine months will increase the probability of a home owner incurring CGT on disposal. The requirements from 6 April 2020 to report the disposal and pay any CGT within 30 days of completion will require the home owner to be in a position to report and pay that CGT very quickly. Homeowners need to be aware of the changes from April 2020 as if they fail to report and pay the tax promptly, they could be subject to penalties.”