2020: How Do Tax Changes Now Affect Your Property?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
The UK housing market is now starting to get back into motion in July 2020, after several long months of stagnation during lockdown. Some important changes have come to the taxation of property in this financial year, particularly with regards to capital gains tax (CGT).
In this article, our Grantham-based financial advisers here at Castlegate offer some thoughts on the latest developments which may affect your financial plan. We hope this aids your thinking on this important subject. If you would like to discuss these matters or your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:
Changes to CGT on residential property & private residence relief
Before the 6th of April 2020, anyone who sold a UK property would have needed to pay CGT on the 31st of January – after the financial year in which the transaction took place. As an example, if you sold a house on the 10th of November 2019 then you would need to pay the CGT by the 31st of January 2021.
In the 2020-21 tax year, however, CGT will need to be paid within 30 days of the transaction being completed. This must be done via a tax return to HMRC – and if the deadline is not met, then penalties and interest will be imposed.
For those wondering how this may affect their financial plan in the coming months, please note that this important change mainly concerns those who have a property in addition to their home (e.g. a Buy To Let). For those looking to sell their main residence, CGT is unlikely to arise as a factor within the transaction process.
Another important change to highlight from the 6th of April 2020 concerns private residence relief (PRR). This is the relief which allows homeowners to sell their main residential property without facing CGT, and which alleviated it when selling a second home or part of your garden. Here, PRR is particularly important for those looking to sell their main home, but who may not have physically lived in it at certain times.
Before the 6th of April 2020, a seller could qualify for PRR if they lived in the property at some point, even if not in the last 18 months. In 2020-21, however, this period of “deemed occupation” is now reduced to 9 months. This has the potential to create a CGT liability for a seller where one did not previously exist. Be careful to seek professional advice, therefore, if you think this may affect your finances.
What about the new stamp duty rules?
At the time of writing, the UK property market is still struggling back into life after house sales ground to a halt during the lockdown in the first quarter of 2020. To try and nudge the sector back into life, Chancellor Rishi Sunak has introduced a new stamp duty tax break from July. This could amount to thousands of pounds in savings for property buyers, so it’s important to note.
The new tax break will run until the 31st of March 2021 and could result in 90% of buyers not needing to pay any stamp duty within this period. For property investors, moreover, they can also take encouragement from the Chancellor’s announcement. Those buying a second home or a Buy To Let will benefit from a lower rate – i.e. 3% on the first £500,000 of a property’s value.
Under normal conditions, in England and Wales all land/property transactions worth at least £125,000 face a stamp duty charge. First-time buyers are exempted from the tax on the first £300,000 of the transaction value, with a 5% on the value between £300,000 and £500,000. For most other people, there is usually a progressive rate of tax, with:
- 2% levied on transactions between £125,001 and £250,000;
- 5% on £250,001 to £925,000;
- 10% on £925,001 to £1.5m;
- 12% on anything above £1.5m.
Normally, purchasing a Buy To Let (or a second home) would result in 3% being added to these rates. So, in short, the current stamp duty “holiday” until the 31st of March 2021 could be a good opportunity for many in the property market who are looking for a good deal.
With interest rates also currently set so low (i.e. a 0.10% base rate), there could be scope to not only save on tax during the transaction but also save on monthly mortgage repayments in the medium term via a competitive fixed-rate mortgage. If this results in more money in an individual’s pockets, then this could go a long way towards strengthening a financial plan – perhaps by committing it towards emergency savings or a pension fund.
The situation in the UK economy continues to evolve and affect people’s financial decisions and prospects. Here at Castlegate, we are committed to keeping people in Grantham, Lincoln and Nottinghamshire informed and to assist with their financial planning needs.
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: