Cash is King for Capital Gains Tax on disposals of residential property

Cash is King for Capital Gains Tax on disposals of residential property

Wed 25 Nov 2015

The payment window for capital gains tax (CGT) due on the disposal of residential properties will be reduced dramatically from April 2019, but little is known as to how this will work. 

The Chancellor has announced that from April 2019, the CGT due on the disposal of residential property must be paid within 30 days of “the date of disposal”.

The key drivers for this change have been stated as aligning the payment of the tax liability on such transactions more to that of taxpayers paying income tax under the PAYE system and also to ensure that the tax liability is paid while the taxpayer still has the proceeds to do this.

An obvious incentive for the Government in introducing this change though is the cash flow advantage. CGT on these disposals is currently collected through the self-assessment system, with the tax liability being paid anywhere between 10 and 22 months after a disposal is made. The magnitude of this change can be seen from the Governments estimation that this change will see an £930 million of tax receipts brought forward in the first year.

Very little detail as been released as yet, and legislation is not expected until late 2016 on the release of the draft Finance Bill 2017. However, this announcement does raise a number of questions.

  • What rate of capital gains tax will be applied to the disposal? This is dependent upon a taxpayer’s other income, which will not necessarily be know at the time of the disposal or when the liability falls due.
  • How will the system work? Part of the delay in introducing this measure is to allow HMRC’s digital system to be made compatible, but consideration will also have to be given to how it links in with the usual self-assessment system, and in particular, other capital gains and losses crystallising in the tax year.

For more information, please contact:

Zoe Peck

Derek Carter

Adele Swaine


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