From 6 April 2023, the annual exemption was reduced from £12,300 to £6,000 (2023/24 tax year) and further to £3,000 from 6 April 2024 (2024/25 tax year and subsequent years).
Following the 2024 Spring Budget, the Chancellor announced a reduction in the residential property CGT rate for higher rate taxpayers from 28% to 24%, which applies to residential property disposals from 6 April 2024 onwards. This means, despite the reduction in the annual exemption, higher rate taxpayers disposing of residential property after 6 April 2024 could now be better off compared to previous years. Unfortunately, there has been no reduction in the residential property CGT rate for basic rate taxpayers, which remains at 18%.
Although this will benefit some, the overall effect of the CGT changes will mean more individuals will be caught within the scope of the 60-day CGT on UK property reporting.
60-day CGT return - what disposal needs to be
reported
The requirement to report certain disposals of UK residential property shortly after the disposal, rather than simply in that year’s tax return, came in from 6 April 2020. Initially, the deadline to both file the report and pay any CGT was 30 days but was extended to 60 days for disposals which completed on or after 27 October 2021.
The rules apply to all disposals of UK residential property made by individuals, trustees and personal representatives – this can be sales, gifts or transfers as part of a divorce settlement. The rules apply for each owner, not each property so that joint owners will each have to review their position.
UK residential property isn’t just restricted to second homes or buy-to-let properties – it also includes disposals of the family home where not all the gain is covered by main residence relief because, for example, the owner moved out more than nine months before sale.
Which taxpayers?
UK resident taxpayers don’t have to make a report if there’s no tax payable because they made a loss or because the gain is within the annual exemption (currently £3,000 for individuals). UK taxpayers will probably still need to do the calculations to make sure that they don’t need to make a report – the good news is that it will save time when it come to the self-assessment return.
Non-UK tax residents will need to make a report regardless of whether there’s any tax charge.
What gain?
Generally, the gain is the amount you sold for minus the amount you acquired the property for. Costs directly relating to the property disposal and acquisition (such as legal and estate agent fees, as well as Stamp Duty Land Tax) can be included to further reduce the gain. Additionally, any enhancement/alterations made to the property that increase its value can also be deducted before arriving at the chargeable gain.
The 60-day period should give enough time to collect details of sales proceeds and associated costs, as well as collect details of the original purchase and any subsequent property enhancements. It’s always good advice to keep details of acquisition and improvement costs as they are incurred so that they can be easily identified at the time of disposal.
It may be necessary to use estimates but if they are subsequently found to be ‘unreasonably low, HMRC will charge interest on any underpaid tax. The appropriate box must be ticked where estimates have been used – if not, HMRC will charge interest on any late paid tax, even if the estimate wasn’t unreasonably low.
What tax?
When a taxpayer is completing the CGT return, likely, the tax year has not ended yet. Taxpayers will need to consider their likely income and other gains for the current tax year to determine the rate and amount of tax that is required to be reported. It is acceptable to factor in the annual exemption and any available capital losses into these calculations.
How to make the report?
The reporting process is intended to operate primarily online and involves taxpayers setting up a specific CGT on a UK Property Account. The online system requires the computation of the gain and includes a calculation of the tax in case one has not been prepared.
Taxpayers can appoint an adviser to complete and submit the returns on their behalf, once an account has been created. A ‘digital handshake’ is required to be completed to allow the agent to access information directly.
It is worth noting that HMRC does facilitate the use of paper returns for those who have trouble dealing with digital forms.
Revising the report:
Once the taxpayer is past the end of the relevant tax year and can confirm the levels of other income and gains, they are likely to need to revisit the calculations made in the report.
If a taxpayer completes a self-assessment tax return in any event, they will need to report all the information again, including giving the references of the CGT report and the tax paid. The adjustment is simply made when completing the tax return in which the disposal took place, with extra tax paid along with their income tax liability, and refunds automatically offset against the income tax liability. However, if the tax return is in an overall repayment position any overpaid CGT will not be refunded automatically, taxpayers will be required to contact HMRC.
In the remaining circumstances, taxpayers or their agent can go back into the online report and change it by twelve months after 31 January following the tax year of the disposal. Alternatively, they can submit a new property return to replace the old one. They can then claim a refund or pay any extra CGT via the Property Account.
With the changes in the rules, allowances, and rates, it can be cumbersome to keep on top of your reporting requirements. It is always best to seek advice if you have any issues or doubts.