Changes to Capital Gains Tax on Residential property
The deadlines for paying Capital Gains Tax after selling a residential property in the UK have changed from 6th April 2020.
From 6th April 2020, if you’re a UK resident and sell a residential property in the UK you’ll have 30 days to tell HMRC and pay any Capital Gains Tax owed.
If you don’t tell HMRC about any Capital Gains Tax within 30 days of completion, you may be sent a penalty as well as having to pay interest on what you owe – so it’s really important that everyone involved in the sale of a residential property fully understands these changes, which affect both UK and non-UK residents. Below we highlight some of the key changes.
What has changed?
From 6th April 2020, an Individual, trust or executor/executrix of an estate who sells a UK residential property may be required to complete a ‘real-time’ CGT return and pay any CGT due within 30 days of the completion date of disposal.
This is replacing the previous method of reporting capital gains for UK residential property. Previously, this would be reported via your UK self-assessment tax return on the capital gains tax pages for the relevant tax year in which the sale took place, with payment not falling due until 31st January in the following year.
Under the new reporting regime, the capital gain will still need to be reported on your self-assessment tax return, but this will be supplementary to the real time tax return and the payment of CGT required within 30 days of completion.
Who is impacted?
As mentioned, these changes apply to any individual, trustee, executor or executrix of an estate who sells/disposes of a UK residential property from the 6th April 2020 onwards. If you hold any interest in a UK residential property you will be required to complete a capital gains tax return to report the sale and to pay the capital gains tax liability.
For UK residents, a return will not be required if there is no capital gains tax liability.
For non-UK residents, a non-resident CGT return must be completed within 30 days of the disposal of any UK property, regardless whether a profit or loss was made upon sale. The only exemption to this is where the property was your main residence for the entire period of ownership.
How much tax is due on a property gain?
Unlike non-property related capital gains which are charged at 10% or 20%, the Capital Gains Tax on a property is charged at 18% or 28%.
The different rates depend upon the tax band the gain falls into when added on top of your income (18% on any gain falling in the basic rate band and 28% on any balance).
Individuals have an annual CGT allowance of £12,300 in 2020/21.
What properties are affected?
All UK residential property that is not occupied as a main residence, will fall within the reporting requirements.
Therefore, if you own an interest in a property which you do not occupy i.e. it is let out as a buy to let, is held as an investment property, is a holiday home, or a property that you’ve inherited and have not used as your main home, you will need to complete a capital gains tax return.
What transactions are unaffected?
- If you had a legally binding contract for sale before 6th April 2020.
- If the property met the criteria as your private residence throughout your period of ownership.
- Where the sale was made to a spouse or civil partner.
- Where the total chargeable property gains in the same tax year are within your tax-free allowance (called the annual exempt amount).
- The property was sold at a loss.
- Or the property is outside the UK.
Implications of not meeting the reporting requirement
If you meet the conditions requiring you to complete a capital gains tax return and subsequently you fail to report and pay within the 30 day deadline, HMRC will issue both late filing and payment penalties. Interest will also be charged on any late paid tax.
HMRC have access to the land registry and therefore are fully aware when a change in ownership of UK residential property occurs.
Overview of the reporting and payment process
The steps below outline what needs to be done upon completion of the sale:
- All matters need to be processed, filed and the tax paid within 30days.
- Collate details and documentation relating to the property purchase and sale.
- Confirm that there is a capital gains tax liability.
- Set up a personal government gateway account.
- Create a capital gains tax property account.
- Complete the capital gains tax return and pay the tax liability.
How can M.B. McGrady & Co Chartered Accountants help?
With a specialist property sector team, we can complete and file the real time capital gains tax return on behalf of our clients. We can also help prepare and submit your annual self-assessment tax return for the relevant year too.
If you are required to report and pay capital gains tax under the new 30-day reporting deadline, please get in touch a member of our team as early as possible; either just shortly prior to the completion date or soon after. This way we can ensure that all the information required can be collated and the 30-day deadline can be met.
If you need help making sense of the changes, or if you may have cash flow constraints, please contact Nicola McCartan, Chartered Tax Manager and Property Sector Specialist at Nicola.McCartan@mbmcgrady.co.uk