Changes to U.K. Capital Gains Tax on Residences May Create Problems

Home sellers in the United Kingdom should take note of changes to capital gains tax rules coming into effect on 6 April 2020.

The United Kingdom has made changes to the imposition of capital gains taxes that will take effect 6 April 2020.  Some of those changes could be problematic for sellers of personal residences.

The U.K. provides a tax exemption for sale of principal residences, but sale of other homes is subject to capital gains tax, which has been increased to either 18% or 28% depending upon income (as opposed to 10% or 20% for other assets).  In addition, for sales to qualify for the principal residence exemption the time in which the old residence must be sold after purchase of a new one has been decreased to nine months.  For example, if an individual moves to a new job and buys a new home there, the old home must be disposed of within nine months to benefit from the principal residence exemption.

If sale does not qualify for the exemption, the new rules require submission of a tax return and payment of the tax within 30 days of the transaction, as opposed to other capital gains returns which are due by January 31 of the year following the disposal.  Moreover, the 30-day period runs from the date contracts are exchanged, rather than from the completion date if that is later.  Consequently, sellers of homes must be careful to avoid noncompliance with the rules.  In some cases, tax must be paid prior to ultimate settlement.

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How This Impacts Mobility

Companies transferring UK homeowners must be familiar with these new rules to avoid inadvertent failure to qualify for tax exemption on home sales.

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