New reporting requirements have been introduced for Capital Gains Tax payments made on UK residential property which represents a major change to the normal reporting and payment deadlines for taxpayers.
What is Capital Gains Tax?
Capital Gains Tax is potentially payable on any gain made from the disposal of a property. Such tax liability would usually arise on the sale of a property, but a disposal can include the gifting or transferral of a property to someone other than a spouse or civil partner.
On what property is it payable?
This tax on property disposals is not usually payable if you sell your main residence, although you may be liable if you use part of your own home commercially or let part of it out. It would, however, apply on the disposal of residential buy-to-let property, second homes or holiday homes.
It could also apply if you sell your main residence if, in the past, the property had periods when it wasn’t your main residence. This will be when only a partial Private Residence Relief is available.
There is an annual allowance of £12,300 for the tax years 2020/21 and 2021/22.
What are the new Capital Gains Tax reporting requirements?
The estimated Capital Gains Tax payable on UK residential properties sold on or after 6 April 2020 now needs to be reported to HMRC and paid within 30 days of completion of a sale. Those who fail to do this may be liable for penalties and interest charges.
For disposals prior to this date, any capital gains should have been disclosed in an annual self-assessment tax return, the latest should have been reported in a 2019/20 self-assessment, which was due on 31 January 2021.
Those who are required to report a capital gain within 30 days of a sale, if you fall inside self-assessment you must also complete the capital gains pages disclosing the disposal in the year of sale.
If you have no other Self-Assessment requirement you will only need to report the disposal once on the UK Property 30 days Disposal form. The sale will now no longer trigger Self-Assessment registration.
The Capital Gains Tax payment must be settled within 30 days of sale, this is a payment on account and the subsequent self-assessment tax return makes sure that the right amount of tax has been paid in the tax year.
Who is affected by the new reporting requirements?
The following UK tax resident persons are within the scope of the 30-day rules:
- joint owners of property;
- trustees; and
- personal representatives.
What happens if you fail to report and pay the capital gains tax within 30 days?
If you miss the deadline by:
- up to 6 months, you will get a penalty of £100
- more than 6 months, a further penalty of £300 or 5% of any tax due, whichever is greater
- more than 12 months, a further penalty of £300 or 5% of any tax due, whichever is greater
If you have to pay any non-resident Capital Gains Tax within the same 30-day period, late payment penalties and interest may also be due if you miss the deadline.
If any non-resident Capital Gains Tax remains unpaid after 31 January after the end of the tax year of the disposal, a late payment penalty of 5% of the tax outstanding will be charged.
Are any transactions exempt?
There is a 30-day reporting requirement where no tax arises on the disposal for UK Residence only. This could include scenarios such as:
- the property is being sold at a loss;
- the disposal is a ‘no gain, no loss’ transfer between spouses or civil partners;
- any gain on the disposal will be covered by exemptions such as the annual exemption;
There is also no 30-day reporting requirement if the disposal falls into one of the following categories:
- disposals by a charity;
- the grant of a lease on commercial terms for no premium, to an unconnected person;
- disposals of a pension scheme investment; or
- a disposal of property which is chargeable to income tax.
If you are a Non-UK Resident it is a requirement to report all disposal of Residential properties whether sold at a gain or loss. Prior to the changes from 6th April 2020, the disclosure was only required if there was tax to pay, this is no longer the case.
What does the reporting process involve?
A new digital service has been developed by HMRC and all reports should be made through this. To make a report, you need to register for a Capital Gains Tax on UK Property account with HMRC.
Once the 30-day return is submitted, HMRC will issue a payment reference, under which a payment on account of the estimated Capital Gains Tax arising from the disposal can be made.
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.