The current crisis is completely absorbing for most of us but there are, nevertheless, important tax changes which it is well to remember will be effective in a few days time. From 6 April 2020 a minor overhaul of capital gains tax will see payment deadlines shortened, a reduction in the final period exemption and a reform of lettings relief.
Here are the changes in a nutshell.
Reduction of final period exemption and reform of lettings relief
The reduction of the final period exemption from 18 to nine months, except for the disabled and those in care, and the restriction of letting relief to those who share occupation of their home will have effect where contracts are exchanged on or after 6 April 2020.
In relation to letting relief, it is particularly important to note that the changes will apply irrespective of when the letting occurred. So, for example, an individual could have let out his home many years ago while living elsewhere.
Even though, at the time, letting relief would have applied even though there was no shared occupation, if the disposal occurs on or after 6 April 2020, the new rules will apply and part of the gain will be taxable if not covered by any of the exemptions for periods of absence found in TCGA 1992 s 223(3).
Although a number of respondents to the consultation called for a review of the effective date, the government’s response was that allowing periods that would have qualified for lettings relief before 6 April 2020 to remain eligible would have added significant complexity.
Enactment of ESC D49
Extra statutory concession D49 currently affords relief where an individual either acquires land on which he builds his home or purchases an existing house but carries out work or completes the disposal of a previous residence before occupying it.
While the concession provides relief for periods of up to one year (or a maximum of two years for circumstances outside the individual’s control), draft legislation to enact the concession will automatically allow relief for a period of up to 24 months.
However, while it has been suggested that the concession should apply for a maximum period of one or two years, whichever is relevant, even if the property was not in fact occupied within that period (see the case of McHugh [2018] ) the draft legislation appears to put beyond doubt that relief will not be available unless the time when the house became the individual’s only or main residence ‘is within the first 24 months of the individual’s period of ownership’ (proposed new s223ZA(1).
The draft legislation also makes clear that relief will not be due if, at any time during the period, the property is another person’s residence (s223ZA(2)).
Again, the enactment of the concession is due to take effect for disposals made on or after 6 April 2020.
Inter-spouse or civil partner transfers
Currently where there is a disposal of an interest in a home between spouses or civil partners, the period of ownership and the period of occupation as an only or main residence of the transferor spouse are treated as ownership/occupation of the transferee, but only if the property is the transferor’s only or main residence at the date of the transfer.
This requirement is to be removed for inter-spouse/partner transfers taking place on or after 6 April 2020. However, it is worth noting that this could work to the transferee spouse’s detriment.
For example, if Vortigen transferred an interest in a house acquired in April 2010 that had never been his only or main residence to his civil partner, Vercingetorix, on 7 April 2020 and both then occupied it as their only or main residence until sale in April 2030, Vercingetorix’s period of ownership would begin in April 2010 and therefore, as it was not Vortigen’s main residence prior to April 2020, only half of his share of the gain would be eligible for main residence relief.
If the transfer had been made on 5 April 2020, Vercingetorix’s period of ownership would commence on that date as it was not then Vortigen’s only or main residence.
Recent Tribunal Decisions
A number of recent decisions at tax tribunals are likely to have an influence on the interpretation of capital gains tax. First, there is the long-awaited Court of Appeal decision in Higgins which focusses on the argument that the ‘period of ownership’ for private residence relief purposes should be measured by reference to completion dates rather than dates of exchange of contracts.
The First Tier Tribunal decision in Lloyd-Webber [2019] cast doubt on the decision of the Upper Tribunal in Hardy v R & C Commrs [2016] on the treatment of contractual rights.
Reneaux [2019] considered the activities that amount to a ‘trade’ for entrepreneurs’ relief purposes.
The new CGT 30-day reporting and payment regime
From 6 April 2020, where capital gains tax is due on the disposal of UK residential property by a UK resident individual or trustees, a new standalone online return will need to be filed, together with payment on account of tax, within 30 days of the date of completion of the transaction. (Finance Act 2019 Schedule 2).
For the avoidance of any doubt, HMRC have confirmed that the new reporting and payment regime applies only to taxable gains accruing on disposals of UK residential property made on or after 6 April 2020 (i.e.in the tax year 2020/21). This means that where contracts are exchanged under an unconditional contract in the tax year 2019/20 (6 April 2019 to 5 April 2020) but completion takes place on or after 6 April 2020 the 30 days filing requirement does not apply. The gain should be reported in the 2019/20 self-assessment return in the usual way.
