Capital Gains Tax is charged on the increase in value of an asset at the time it is sold or gifted by the owner. The gain is taxable. For individuals, the rate of tax is dependent on whether the owner of the asset is a basic or higher/additional rate tax payer.
A sale of residential property is a chargeable disposal for Capital Gains Tax purposes. In most cases, the property owners will benefit from the Principal Private Residence Relief (PPR) on their disposal. This is claimed where the property has been occupied by the owner as their only or main residence during their period of ownership.
The 2020 Budget brought in key changes from 6 April 2020:
- The final period of exemption is reduced from 18 months to 9 months, where the property was owned but not occupied as a main residence. Disposals by individuals who are disabled or long-term resident in a care home will retain 36 months final period of exemption.
- Previously, letting relief of up to £40,000 was available on gains where a residential property that was previously a main residence was subsequently let. From 6 April 2020, letting relief is only available if the home remains the individual’s main residence during the period of letting.
- All disposals of UK residential property by UK tax residents, where gains arise, must complete a CGT Property Return and pay the estimated CGT within 30 days of completion of a sale. You will still be required to complete the Self-Assessment Tax Return. If there is no CGT payable, there is no requirement to complete the CGT Property Return.