UK taxpayers should be aware of new rules taking effect from April 2020, under which the Capital Gains Tax (CGT) on the disposal of residential property needs to be reported and paid to HM Revenue & Customs (HMRC) within a 30 day window.
Currently, where a taxpayer disposes of residential property, the capital gain or loss is declared on the self-assessment tax return in the tax year of disposal. The CGT liability is payable by 31 January following the respective tax year, which can be up to 22 months from the date of disposal.
From 6 April 2020, individuals, trustees or personal representatives realising a capital gain from the disposal of UK residential property are required to submit a separate ‘capital gains return’ to HMRC within a 30 day window from the date of completion and make a payment on account for the CGT liability within the same 30 day period.
The changes will mainly affect those disposing of buy-to-let properties, furnished holiday lets or second homes, however, it is important to plan ahead and take early advice from us before selling any residential property in the UK.
HMRC have confirmed that late filing penalties and interest will apply in cases of failure to make a return and make payments on account by the 30 day window.
If you are non-UK resident there are added complexities, so it is important to take separate advice.When is a ‘capital gains tax return’ required?
A return is required where there is a direct disposal of land in the UK on which a residential property gain arises.
A return will not be required where there is no ‘payment on account’ due. This may be the case where the gain qualifies for main residence relief, is covered by the annual exemption or unused losses.
A disposal is also treated as excluded if:
a) if it is a disposal where neither a gain nor a loss accrues (eg inter-spouse transfers) ,
b) it is a grant of a lease, at arm's length to an unconnected person, for no premium, or
c) it is a disposal to a charity or any pension scheme investments.How is the ‘payment on account’ calculated?
A payment on account will have to be made to HMRC by the filing date for the return.
The taxpayer must calculate the amount payable taking into consideration unused losses and any annual exempt amount. If you are unable to obtain full information by the 30-day deadline HMRC will allow reasonable estimates of valuations and apportionments. When buying a property, we recommend you keep record of your purchase and associated costs to calculate the CGT liability in a timely fashion.
The capital gain tax rate for individuals (currently 18% for taxable gains payable at the basic rate and 28% payable at the higher rate, which apply to disposals of residential properties) must be determined after making a reasonable estimate of the amount of taxable income for the year.
A voluntary return may be made where a loss arises, allowing for an appropriate repayment of tax previously paid on account in respect of earlier disposals in the tax year for which a return has been made.
For more information and advice about these tax changes, please do not hesitate to contact us