What are changes to rules?
Rules introduced on 6th April 2020 by HMRC required homeowners to both inform HMRC of the capital gain and pay the capital gain tax (CGT) due on the sale of a property that you had not used as your main home, within 30 days. This has now been increased to 60 days for sales of properties after 6th April 2023. Sales include property that is classed as:
- A second home
- Your holiday home anywhere in the UK
- A rental property including a holiday rental
- A property that you’ve inherited but have not used as your main home.
For UK resident taxpayers
For completion of a residential property sale taking place after 6th April 2023, you will have 60 days to declare the capital gain to HMRC and pay the CGT due via the online property disposal return. This can be completed by the individual or an agent (for example an accountant that you have authorised 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.
From 6th April 2023 all non-UK taxpayers making a UK property disposal will be required to pay the tax within the 60-day deadline – the same as UK taxpayers.
If you’re a non-UK resident, you must use this service to report sales or disposals of:
- residential UK property or land
- non-residential UK property or land
If you’re a non-UK 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?
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 for example, Principal Private Residence relief.
In calculating the gain should this not already have been utilised by other capital disposals in the year.
Principal Private Residence relief and Capital Gains Tax
Private Residence Relief (PPR) helps to reduce the impact of CGT on the profit made from the sale of their main property, particularly if the property has been rented out during a period of ownership. Along with lettings relief, the terms of the current tax exemption mean tax-paying homeowners can avoid paying a hefty tax bill on any ‘chargeable gain’ once the sale of their only or main home is complete.
Changes were introduced effective 6th April 2023 where the PPR exemption has been extended from a fixed 9-month period for couples going through a separation or divorce, until the home is sold, ensuring that the spouse or civil partner who has moved out is not being unfairly treated for CGT. Read more in our blog here: Changes to Capital Gains Tax for Divorce
For more information about Principal Private Residence relief in general, read our blog here: Changes To Private Residence Relief Affecting Income From Property.
Taxpayers are entitled to deduct an annual exemption from their part of the gain and then the capital gains tax can be calculated.
The annual exemption amount has reduced for the 2023/24 tax year from £12,300 to £6,000, and will reduce again to £3,000 post 6th April 2024.
The taxpayer needs to be careful to consider other income for the tax year, in order to ascertain the rate of tax to apply, and 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 60-day declaration and payment rules will not be applicable if the following apply:
- you meet the criteria for Principal 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 property tax obligations for individual clients across the UK for over 25 years, as well as supporting landlords with residential property portfolios to maximise tax reliefs and adhere to property tax legislation. If you need advice on the CGT or annual exemption 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.