New rules taking effect in April 2020 will require capital gains tax (CGT) on residential property to be paid within 30 days of completion. Currently CGT is not due and payable until the self assessment deadline on 31st January of the tax year following the year of disposal. That can be a period of up to 22 months.

Selling landowners and their advisers, as well as purchasing developers and investors will need to be prepared for the new rules and in some instances  make changes to how they transact property. 

The changes will impact on individuals, trustees and personal representatives transferring residential property which gives rise to a taxable capital gain (sales of main residences will qualify for main residence relief). 

It will be necessary for sellers to bear in mind their funding arrangements to take account of early tax payments. They will need to start planning their tax returns well in advance of completion to negotiate instalment payments of tax liability where consideration is deferred. 

Currently on a typical sale, all transaction costs may not have crystallised within 30 days of disposal. There may be ongoing completion works, applications with the land registry or dealing with the assignment of construction package documents. These costs will need to be available within the 30 day deadline or other steps will need to be taken under the new rules to estimate and manage them.

Parties should give careful thought when negotiating new transactions or preparing for any residential property completions due to take after April.  Developers and investors should bear in mind the new rules and how they are likely to impact the negotiating position of landowners and sellers.

Short completion periods (the timing between exchange and contract completion)  may not be long enough for many landowners to make suitable arrangements to plan and fund tax liability. Advisors and banks will need to be aware of the deadlines as well and ensure that funds are available for swift onward payment to the Revenue. 

Forward planning will help minimise the impact of the changes and avoid delays to existing transactions as well as the risk of penalties for late tax payment.