It has now been 18 months since the introduction of reforms to the reporting and payment of Capital Gains Tax (CGT) on the disposal of UK residential properties.
From 6 April 2020, UK residents who dispose (whether by sale or gift) of a UK residential property, must report the gain to HMRC within 30 days of completion, if there is CGT due, and the tax must be paid in the same timeframe; before these reforms, the gain would be reported to HMRC on a Tax Return and any CGT would be due by 31 January following the end of the tax year – potentially up to 22 months after disposal, so this was a significant change. The sale of non-residential property or land by UK residents is not reported on an in-year CGT Return, and instead is reported on the annual Tax Return, as before. Non-residents must also complete the Capital Gains Tax Return within 30 days (including for non-residential property or land), regardless of whether or not there is any CGT due. The sale of other assets, such as shares, is reported on your annual Tax Return.
The process for reporting the disposal is completed online, via the taxpayer’s Personal Tax Account, and they can give agent access to the Capital Gains Tax section to enable the CGT Return to be submitted by an agent. If the taxpayer is unable to set up a Personal Tax Account online – for example, we have seen cases where individuals are unable to complete the security checks if they do not have the requested proof of identity – a paper Return can be requested from HMRC, but this must be requested within the same 30-day timeframe.
The CGT Return requires various pieces of information pertaining to the disposal, as this relates to a complex area of tax. HMRC ask for a copy of the calculation to be uploaded with the CGT Return.
There are tax reliefs available in some circumstances, including if you have lived in the property as your main residence at some point during your ownership. You are also allowed to deduct the cost of buying, selling, and making improvements to the property, but not all costs are deductible. The ‘cost’ of the property will need to be clarified if you inherited it, if it was gifted to you (or sold at below market value), or if you purchased it prior to 31 March 1982. Taxpayers with capital losses brought forward from the same or previous tax years may be able to utilise these losses against the gain. Gifting a property, or selling it for less than the market value, may result in a gain as the ‘deemed proceeds’ will usually be the market value at the date of gift.
The rate of CGT payable depends on your estimated gross taxable income for the tax year of disposal. Joint owners must report their share of the gain separately and may pay different amounts of CGT depending on their share of the gain and their other income.
The CGT Return can be amended after submission, and it may be necessary to review the Return after the end of the tax year, to ensure that the correct rate of CGT has been applied, so that you are not underpaying or overpaying tax. The gain will also continue to be included on your Tax Return if you complete one already. If you make a loss on a residential property, or a gain within the tax-free threshold (known as the ‘Annual Exempt Amount’) and therefore were not required to file a CGT Return, you may still need to report this in your annual Tax Return.
The deadline for submitting the CGT Return is very tight, and penalties are applied to late Returns, including a £100 penalty if not submitted on time, and further penalties at 6 months and 12 months, as well as late payment interest charged on the CGT due, so if you are late, it is still important to do the Return as soon as possible, to minimise the interest and penalties charged.
If you need help with completing your CGT Return, or if you have any questions on CGT, please feel welcome to contact us today.