Window for CGT payments slashed and stamp duty for second properties hiked in Autumn Statement
THE chancellor today changed the date on which property owners must pay their tax, reducing the payment window for capital gains tax due on residential property.
Delivering the government’s Autumn Statement, George Osborne said the window for CGT would be cut from 10-22 months to 30 days after the transaction and will be effective from April 2019.
The change only applies to CGT on the sale of a property and is “narrow in scope”.
“Having hit on the idea of advancing tax payment dates, one can only think future Budgets will extend the principle more widely. The chancellor has discovered the concept of cash-flow,” said David Kilshaw tax partner at EY.
The proposal brings the CGT payment on residential property for UK residents in line with the 30 days allowed for non UK resident individuals. According to Saffery Champness, this could be seen as “unfair” by many invested in property, and a further attack on the buy to let market.
“For most people the CGT due on the disposal of properties within 30 days will not be an issue as most such gains are covered by main residence relief. However, for those affected the administrative burden could be huge, particularly when they have extended the property or have not lived in it for the whole time,” said James Hender, head of private wealth at Saffery Champness.
Hender also attacked the chancellor for adding complexity to the tax compliance system for no additional increase in tax revenues.
“There will undoubtedly be heavy penalties for those failing to meet their new compliance obligations and so the chancellor is perhaps looking to increase revenues by stealth,” he said.
Steve Wheeler, a tax partner with Moore Stephens, questioned whether UK resident tax payers will have the option to delay CGT to 31 January “following the tax year in which the disposal took place” in the same way as non-residents are currently able.
HMRC’s new platform for digiital tax accounts will be used to accelerate capital gains tax payments on second homes.
“If digital tax accounts ultimately make it easier to pay tax, this should also reduce penalties for taxpayers. The tax system needs to be simplified and this is a helpful step forward,” said Kevin Nicholson, head of tax at PwC.
At the same time, the chancellor revealed that buy-to-let landlords and people buying second homes will have to pay a higher rate of stamp duty.
From April 2016, they will have to pay a 3% surcharge on the purchase value of the property. The the new surcharge will raise around £4bn extra for the Treasury by 2021.
The move, Wheeler suggested, could cause a “distortion” in the UK residential property market in the lead up to 1 April 2016.
Stamp duty is currently 2% on the homes valued between £125,000 and £250,000, with another 5% on the next £675,000, 10% on the next £575,000, and 12% on anything above £1.5m. Owners of second homes must also pay capital gains tax of between 18% and 28% on the sale of their properties.