UK Resident Individuals Disposing of Residential Property

The headline changes are:

1. A new 30 day reporting and payment deadline has been introduced for disposals of residential property;
2. Lettings Relief has been effectively abolished; and
3. The final period of ownership rules for Principal Private Residence Relief has been reduced again.

1. Reporting Requirements

This new rule applies to UK Resident individuals and Trustees disposing (selling or transferring) residential property.

Disposals before 6 April 2020

The taxable gain would be reported on the taxpayer's Self-Assessment Tax Return and submitted to HMRC together with any tax due by the 31 January following the end of the tax year of disposal.

Disposals after 6 April 2020

The taxable gain must be reported on a Residential Property Return and submitted to HMRC together with any tax due within 30 days of the date of disposal.  The tax payment cannot be deferred until the usual 31 January payment deadline following the end of the tax year, even if a Tax Return is required.

Exceptions to this rule include:

1. Where the owner has lived in the property throughout the period of ownership;
2. Where there is a loss arising on disposal of the property;
3. Where the owner has sufficient capital losses to fully absorb the gain; or
4. Where the gain is less than available tax exemptions.

Transactions where missives were concluded before 6 April but complete after are excluded from the new reporting requirements.

The disposal will also need to be included in the annual Self-Assessment Tax Return where any capital losses arising on non-residential assets sold later in the tax year can be offset.

2. Lettings Relief

Disposals before 6 April 2020

The owner may be entitled to claim relief up to £40,000 (£80,000 for couples) from the gain if they sell a property which has been let out, if it has been their main residence at some point during the ownership period.

Disposals after 6 April 2020

The Relief may only be available if the owner lived in the property at the same time it was rented out.

3. Principal Private Residence Relief (PPR)

PPR relief applies on the disposal of the owner’s main residence which may exempt all or part of the gain.

Disposals before 6 April 2020

The last 18 months of ownership automatically qualifies for PPR. This was reduced from 3 years in April 2014.

Disposals after 6 April 2020

The automatic relief period has been reduced to the final 9 months of ownership.

These are major changes for UK taxpayers and some could be caught unaware so it always best to let your tax adviser know or seek advice as soon as you are considering selling a residential property so they can check whether you have a filing requirement.

For further information, please contact your usual Morton Fraser Tax Adviser or Collette Kerr  on 0131 247 1037.