On 6th April, there are strict new rules coming into force on the disposal of residential properties which generate a Capital Gains Tax (CGT) liability. The new regime is tight in terms of timing and payment and it is well worth checking if your transaction is at risk of falling into the new regime. This is a significant change to the CGT framework and is likely to `catch out’ taxpayers where only one transaction is involved – perhaps the sale of a property recently inherited or the sale of one rental property.
Any disposal of property which triggers a liability to pay CGT will fall into the new regime. The new requirements will not apply where there is no CGT payable as a result of the disposal – this might be the case where any gain in covered by available annual exemptions, capital losses or, more usually, where the disposal attracts private residence relief.
Could the new reporting and payment regime affect my transaction?
If the property being sold is a second home, a holiday let, a rental property, a property being gifted for no consideration or being sold as part of an estate administration, then the new reporting regime will apply.
So, what’s the big deal?
At the moment, any disposal does not need to be reported to HMRC or any CGT paid until you submit the Self-Assessment Return for the year of the sale. This can be some 22 months after the disposal has been completed.
Under the new regime, the disposal needs to be reported, and the tax paid, within 30 days of completion. Whilst this might not seem too onerous if the property is disposed of and cash funds realised, there will be a significant impact when the property disposed of is gifted – the funds to meet the resulting CGT will still need to be funded and paid over to HMRC within 30 days.
At the moment, you can use the funds you would need for the CGT payment as you wish until the self-assessment payment falls due but, after 6th April, this option is lost and the tax must be paid within the 30 day window from completion.
In addition, there may well be occasions when it is just not possible to assess the CGT payable, particularly if the circumstances around the disposal are difficult, if only part of the property being disposed of attracts private residence relief or independent valuations needed.
What will I need to do?
In practice, there will be a much greater burden on you to comply with the new regime as each disposal will need its’ own `payment on account’ return comply with obligation to report the disposal and to pay the tax within 30 days of completion. If you are involved in several disposals in a tax year, each disposal will trigger a separate report and payment.
In order to be able to file a `payment on account’ return, you will need to be able to work through a complex CGT calculation to make sure that you arrive at a best estimate of the CGT payable. You will need the historic details surrounding the initial purchase or acquisition of the property, any recent valuations and improvements.
These can sometimes take a while to collate. In addition, you will need details of your expected income for the tax year, any capital losses and any available exemptions – this may well be difficult of you are self-employed or would otherwise not usually complete a full Self-Assessment Tax Return. In all likelihood, you will still need to complete a full Self-Assessment Tax Return for the tax year involved.
What happens if I forget or miss the deadline?
If you miss the deadline or simply forget, you will be liable for fines for both late payment of the tax and late filing of the return to HMRC – these fines are cumulative and can be significant (for instance, if you pay the tax after the 30 days, you risk a penalty of an additional 5% of the tax due) so it will pay to take advice from your accountants at an early stage.
For further information, please contact Sarah Witherdige, a Partner in the Property team on 01392 260108 or email firstname.lastname@example.org. WBW Solicitors has nine offices across the South West in Newton Abbot, Bovey Tracey, Torquay, Paignton, Exeter, Launceston, Exmouth, Sidmouth and Honiton.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.