From 6 April 2020 UK residents who sell a residential property that gives rise to a capital gains tax (CGT) liability must send a new standalone online return to HMRC and pay the tax due within 30 days of completion of the sale. The new filing and payment timeframe is different from the current position where taxpayers have until the Self Assessment tax deadline of 31 January after the tax year in which the disposal is made, to complete a tax return and pay the CGT.
The current system means that, depending on timing of the sale, CGT is due anything from 10 months to 22 months after the sale or disposal. The new 30-day deadline means people have less time to calculate the CGT, report the gain and pay the tax. The new return will need to be done online, requiring taxpayers to have a Government Gateway account to either submit the return themselves or to digitally authorise a tax agent (like us) to do it for them.
Selling or disposing of a residential property that gives rise to a taxable gain will fall within the new 30-day deadline if the disposal is completed on or after 6 April 2020. Residential property owners with likely taxable capital gains who are going through the process of selling will now need to plan ahead to meet the new deadline or risk penalties.
Property owners should contact us to let us know that a sale is underway now rather than wait for the annual Self Assessment tax return process as they have done in the past.
This is a huge change for property owners with taxable gains on their residential properties. Rather than thinking about an annual compliance process, property owners need to have their records up to date in advance of the sale so that the 30-day deadline can be met and penalty charges avoided. Make sure that full property details are all readily to hand including the date when the property was acquired, the acquisition cost and details of any improvements made over the period of ownership. In some cases, professional valuations may be needed.
Calculating the CGT due to HMRC will require making a reasonable estimate of the tax payable; this is because the rate of CGT will depend on the taxpayer’s income in the whole tax year. The taxpayer (with our help) must estimate his/her income for the year so that the correct CGT rate of 18% or 28%. This may not be a problem where income is steady and predictable but more difficult if income levels are uneven or more than one property is sold in a year, so affecting the overall CGT due.
Owners that are likely to be affected are those selling second homes or buy to lets with taxable gains. They will need to be ready for the new deadline.
Homeowners who have lived in their house for the whole of the period of their ownership are usually covered by CGT private residence relief which means no taxable gain arises on sale. For those homeowners nothing changes because there is no gain to report.
However, for homeowners who have let their property or moved out for long periods before selling the tax rules can be complex. New rules were announced at Budget 2018 for lettings relief and a reduction in the final qualifying exempt period of ownership from 18 months to 9 months from April 2020. For more information on this please contact us.