From April, people selling a home they don’t live in could pay more tax and have to pay it more quickly.
Capital Gains Tax (CGT) is charged when you sell something for more than you paid for it. Most people never come across it because there are lots of exemptions and the first £12,000 of gains in the year are tax-free. But it can bite unexpectedly when you sell a home that’s not currently your main residence.
The home you live in is always exempt from CGT when you sell it. But a property you don’t live in as your main residence is not. So if you sell a holiday home or a buy-to-let, then CGT will be due on the profit, after deducting any expenses of owning it.
The tax can also strike people who have moved out of a home they once shared with a spouse, when that house is sold.
And it can hit those who buy a home and move into it before selling their old one: since 2014 they have had just 18 months – it used to be three years – before CGT begins to be charged.
Two new rules apply to property sold on or after 6 April this year. First, the period before CGT begins to be incurred will be halved to nine months. If you own your previous home and your current one for longer than that, CGT will start being charged on a proportion of the gain on the old home, and will grow as time passes.
Second, the tax must be paid sooner. At the moment it’s worked out and paid in the next self-assessment period, between ten and 22 months after the sale.
From April the tax must be declared and paid within 30 days of the sale or penalties will be charged.
That means records have to be kept up to date and the complex CGT calculations done swiftly after the property is sold. So if you own a second property and plan to sell it, take professional advice and try to complete the sale before 6 April.