This certainly gives a little more breathing space but doesn’t resolve some of the underlying problems, some of which have been highlighted during the recent submission of the first self-assessment tax returns which have to include the same disposals.
What disposals?
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 principal private 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 £12,300 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 resident taxpayers will need to make a report regardless of whether there’s any tax charge.
What gain?
The extended 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?
The extension won’t help with calculating how much tax to pay – taxpayers need to consider their likely income and other gains for the current tax year, but it is acceptable to allow the annual exemption and available capital losses.
How to make the report?
Having determined that a report is needed, the new reporting process continues to be problematic – the service is intended to operate primarily online and involves taxpayers setting up a specific CGT on UK Property Account, even if they want to ask their existing adviser to submit the report for them. The online system requires the computation of the gain and includes a calculation of the tax in case one has not been prepared. There is a little-publicised option to request a paper report for those individuals who cannot deal with the digital forms at all, but even those who can use the online system may need help in taking the initial steps before the agent is able to access information directly.
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. In certain circumstances, they 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. This includes amending an estimate, claiming a relief, or confirming a change in residence status. They can then claim a refund or pay any extra CGT via the Property Account.
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. They can’t amend online and instead will have to make all the amendments in the SA return. Specific boxes on the tax return are provided details of the property disposal report. If insufficient CGT was paid on the property disposal, the balance will be due as part of the usual self-assessment liability, but any repayment must be manually requested from HMRC.
As with many tax rules, those who use them regularly will become familiar with the processes. However, those who only occasionally dispose of residential properties may miss the requirement altogether, let alone get to grips with the process itself. If in any doubt, it’s always best to seek advice.
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New Capital Gains Tax regime - Disposals of UK residential property
From 6 April 2020, UK residents disposing of UK residential property are required to report the disposal to HMRC and pay any Capital Gains tax liability within 30 days of the completion date. Residential property includes land that has held a dwelling at any time.