Changes in relation to reporting a taxable disposal of UK residential properties, as well as capital gains tax (CGT) arising from such a disposal, came into effect from 6 April 2020.
We have decided to outline the key changes below as the late filing relief period which HMRC granted ended on 31 July 2020.
Who is affected?
The changes affect UK resident individuals and trustees disposing of UK residential properties. Non-UK residents already had a requirement to report the disposal of such property. The new rules do not apply to transactions involving non-UK property.
What changed this year?
Previously, the disposal of any kind of property (including UK residential property), was reported on the annual self-assessment return. With effect from 6 April 2020, disposals of UK residential property need to be reported within 30 days with any CGT due also payable by this date. The 30 day count starts from the date of completion (not from the date of exchange of contracts).
What exemptions are there?
Not every disposal of UK residential property needs to be reported under the new rules. Only transactions which give rise to a chargeable gain and result in a CGT liability need to be disclosed. Accordingly, disposals where no CGT is due (i.e. those which qualify in full for principal private residence relief (PPR), fall within the CGT annual exemption, inter-spousal transfers and transfers resulting in a capital loss) are excluded from the 30 day reporting rules.
Can I include loss-relief?
When computing the taxable gain, only capital losses which have already been realised can be deducted (i.e. any predicted or anticipated losses that will arise at a later date are ignored). Relief for such losses may be claimed via the self-assessment return (subject to the normal CGT loss relief rules).
Can I use estimates?
Given the 30 day reporting deadline, the information required to compute the gain may not be available in full. Therefore, the legislation provides for use of the best available estimates. The CGT return may then be amended within 12 months, if required.
How does the new CGT return interact with my annual tax return?
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.
Do I have an alternative to on-line filing?
Unfortunately not. The CGT return will need to be completed online, using a dedicated HMRC service. SRC-Time is able to submit the returns on behalf of its clients, provided appropriate steps are taken to complete the agent authorisation.
We can assist you to open a Government Gateway account which will allow you to authorise us to act on your behalf.
What penalties can be charged?
If the 30 day deadline is missed, late filing penalties will apply. Interest will always be charged on any tax paid after the 30 day deadline.
Where the return is not filed within 30 days of the completion date an automatic late filing penalty of £100 will apply. If the return is more than three months late, daily penalties can apply and then fixed £300 penalties at 6 months and 9 months, in the same fashion as apply for late Self-Assessment returns.
What about expats?
For individuals leaving or arriving in the UK part way through the tax year, the disposal of the property will be reportable if it falls within the UK resident part of the tax year.
Non-UK residents must continue to report sales or disposals of interests in UK property or land regardless of whether there is a CGT liability, within 30 days of completion of the disposal. From 6 April 2020, there is no longer an option to defer payment of CGT via a Self-Assessment return, and any tax owed must be paid within the 30-day reporting and payment period.
Don’t forget the changes to Principal Private Residence Relief from 6 April 2020
Letting Relief was previously available if you sold a property which was once your main residence and subsequently let it. It was possible to deduct a maximum of £40,000 from the amount of the chargeable gain. From this tax year the relief has been withdrawn unless you occupy your main residence with a “lodger”
The terminal ownership period continues to qualify for PPR, but it has been reduced from the last 18 months to the last 9 months.
SRC-Time are one of the South East’s leading accountancy firms in advising the self-employed and partnerships in all aspects of their tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at firstname.lastname@example.org or speak with an account manager to get any process started.