What are the changes?
The key change effective on 6th April 2020 is a 30-day deadline to both inform HMRC of the capital gain and pay the capital gain tax (CGT) due. These changes apply to the sale of a property after 6th April that you have not used as your main home, for example:
- a holiday home in the UK
- a property which you rent out
- a property that you’ve inherited but have not used as your main home.
There will be penalties charged if these new rules are not adhered to as well as interest being charged on what you owe to HMRC. These penalties and charges will also apply to underpaid tax.
For UK Resident taxpayers
If completion of a residential property sale takes place after 6th April 2020 then you will have 30 days to declare the capital gain to HMRC and pay the Capital Gains Tax due via the new online property disposal return. This can be completed by the individual or an Agent. For the agent to file, the taxpayer needs to set up a Capital Gains Tax Accounts and provide the agent with a reference.
If not all the facts are available at the required filing deadline then an estimated calculation can be submitted and amended by the subsequent filing of the Self-Assessment.
If a Self-Assessment is filed generally for another reason i.e. to declare Self Employment or other untaxed income, then the gain will also need declaring via this. If the only reason to file the Self-Assessment was to declare the Capital Gain this is no longer required just the new online property disposal return form.
For Non-UK Taxpayers
The changes for non-UK taxpayers is the deadline for payment of tax. Prior to 6th April 2020, non-UK taxpayers have been required to submit the online property disposal form within 30 days of disposal, however there was a deferment in paying the CGT if the individual submitted a Self-Assessment which allowed them until 31 January following the end of the tax year to make a payment.
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.
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 manage the personal tax of many clients in the UK, as well as assisting landlords with residential property portfolios on maximising tax reliefs and adhering to property tax legislation. If you need advice on the upcoming CGT changes for UK residential properties or would like to know more about our property tax services, please contact one of our friendly team on 0161 905 1801 in Manchester, or on 01925 830 830 in Warrington.