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.
This is a significant departure from the current filing and payment time-frame 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 Chartered Institute of Taxation (CIOT), which has highlighted the change and issued the warning goes on to explain that 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 CIOT warns. 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 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.
Additional Information from CIOT
The CIOT adds that residential property owners with likely taxable capital gains who are going through the process of selling now should keep a close eye on the Government’s website to check for updates on how the new system will work.
John Bunker, chair of CIOT’s Private Client UK Committee, said: “It is essential that people plan ahead to meet the new deadline or risk penalties.
“Property owners should contact their tax agent or adviser if they have one, to let them know that a sale is underway now rather than wait for the annual self-assessment tax return process.
“This is a seismic 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 the property owner to make 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 must estimate his/her income for the year so that the correct CGT rate of 18 per cent or 28 per cent is applied. 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.
Bunker said: “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 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 nine months from April 2020.”
Reporting is not completely new as non-UK residents have had 30 days to report sales of UK residential property since 2015, and commercial property since 2019. However, there have been lots of appeals heard by the Tax Tribunal regarding late filing penalties imposed by HM Revenue & Customs.
The persons most likely to be affected by the change will be:
- buy-to-let landlords;
- owners of second homes / holiday homes;
- owners of large properties / landed estates;
- owners who have not always lived in the property.
The calculation of the CGT is not straightforward. The information needed will include:
- the original cost of the property;
- enhancement costs;
- legal fees;
- any capital losses to offset against the gains;
- any tax reliefs or claims that can be made;
- their tax rate based on estimated income and gains.