Under the old rules, UK residents had until 31 January following the tax year of sale to disclose and pay any CGT to HMRC (between 10 and 22 months from the date of sale). The new rules will therefore accelerate the payment of CGT in those cases, by way of a ‘payment on account’ as well as creating a further reporting requirement for the taxpayer.
A similar regime is already in place for non-UK residents who dispose of any UK property or ‘property rich’ company – whether it be residential or commercial.
The new rules will only affect UK residents who dispose of UK residential properties. Commercial properties sold by UK residents will remain under the existing regime.
If you have a taxable gain to report, you must do the following within 30 days of completion:
- calculate the gain made on the sale of UK residential property (using estimates if necessary);
- report the gain to HMRC;
- make a payment of CGT to HMRC (CGT rates for residential property are currently 18% or 28% depending on income levels).
After the end of the tax year, the property gain should be disclosed on the annual self-assessment tax return as before. Once your full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and payment already made will be deducted. This could result in an over or underpayment.
If you have no gain to report or the gain is covered by exemptions or losses, you will not have to complete a property disposal return within 30 days. For example, if you are selling a property that has been your only or main residence for the entire period of ownership, you will not need to prepare a return within 30 days as any gain would be covered by Private Residence Relief (PRR).
The new rules will mainly affect UK residents with second homes, landlords looking to sell their residential property lets, or those who are selling a property which has not always been their main residence. One thing to bear in mind is that the above changes coincide with the removal of lettings relief and the reduction in the final period that qualifies for PRR. This could mean that some people who thought they could sell tax-free may not be able to do so under the new rules.
Any tax payable on a property that is sold on or before 5 April 2020 will be due for payment no later than 31 January 2021, however where a property is sold on or after 6 April 2020 payment will be due no later than 30 days after completion.
As the CGT return is separate from the self-assessment return, the same disposal may be reported on two returns. The CGT paid under the new rules is treated as a payment on account against the final self-assessment liability.
The CGT return will need to be completed online, using a dedicated HMRC service. Agents will also be able to submit the returns on behalf of the taxpayers, provided appropriate steps are taken to complete the agent authorisation. If the 30-day deadline is missed, late filing penalties will apply.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.