This new law applies to UK resident taxpayers and non-UK resident taxpayers, so make sure you’re adhering to requirements if you’re selling a residential property and have benefitted from an increase in value since purchasing it.
What are the new rules?
Effective on 6th April 2020 there is now a 30-day deadline to both inform HMRC of the capital gain and pay the capital gain tax (CGT) due on the sale of a property after 6th April that you have not used as your main home, for example:
- A second home
- Your holiday home anywhere in the UK
- A rental property including a holiday rentals
- A property that you’ve inherited but have not used as your main home.
Due to the effect of Coronavirus on the economy, HMRC have allowed for any transactions completed on or after 6 April 2020 to 1 July 2020 and reported up to 31 July 2020 to not be subject to a late filing penalty.
However, transactions completed from 1 July 2020 will receive a late filing penalty if they are not reported within 30 calendar days. If the tax remains unpaid after 30 days for all transactions from 6 April 2020, interest will be charged. These penalties and charges will also apply to underpaid tax.
For UK resident taxpayers
For completion of a residential property sale taking place after 6th April 2020, you will have 30 days to declare the capital gain to HMRC and pay the CGT due via the new online property disposal return. This can be completed by the individual or an agent (for example an accountant that you have authorized to act on your behalf). For the agent to file, the taxpayer needs to set up a Capital Gains Tax Account and provide the agent with a reference.
If you sold the property before 6 April 2020, report the gain using the ‘real time’ Capital Gains Tax service or in your next Self-Assessment tax return.
From 6th April 2020 all non-UK taxpayers making a UK property disposal will be required to pay the tax within the 30-day deadline – the same as UK taxpayers.
If you’re a non-resident you must use this service to report sales or disposals from 6 April 2020 of:
- residential UK property or land
- non-residential UK property or land
If you’re a non-resident, you must report all sales or disposals of UK property, even if you have no tax to pay or have made a loss.
How do I work out how much I need to pay?
In order to calculate the gain, the taxpayer will need the following information:
- Full address of property being disposed
- Date contracts exchanged
- Date of completion
- Purchase date and cost of the property and associated legal fees on purchase
- Sales proceeds together with legal fees associated with the sale and date of disposal
- Any enhancement costs to the property
- Calculation of available reliefs i.e. Principal Private Residence relief.
In calculating the gain should this not already have been utilised by other capital disposals in the year. The taxpayer will be entitled to deduct an annual exemption from their part of the gain and then the capital gains tax can be calculated.
The taxpayer needs to be careful to consider other income for the tax year in order to ascertain the rate of tax to apply, in order to calculate whether the gain falls into the basic rate band or the higher rate band or both.
Circumstances where the new legislation will not apply
HMRC have stated that the new 30-day declaration and payment rules will not be applicable if the following apply:
- a legally binding contract for the sale was made before 6 April 2020
- you meet the criteria for Private Residence Relief (see above)
- the sale was made to a spouse or civil partner
- the gains (including any other chargeable residential property gains in the same tax year) are within your tax-free allowance (called the Annual Exempt Amount)
- you sold the property for a loss
- the property is outside the UK.
At LWA, we’ve been managing the personal tax obligations for clients across the UK for over 25 years, as well as supporting landlords with residential property portfolios, maximising tax reliefs and adhering to property tax legislation. If you need advice on the CGT changes detailed above, or are concerned about the deadlines, please contact one of our expert tax team on 0161 905 1801 in South Manchester, or on 01925 830 830 in Warrington.