UK residential property – disposals from April 2020

Our blog from November 2019 discussed the new reporting requirements for residential properties disposed of from April 2020.

As the new rules are now in place, it is important to fully understand them and ensure you are declaring the correct information and tax to HMRC. There are many financial and legal considerations to make when disposing of property, but have you considered the tax implications and filing requirements?

We have listed below the main questions and answers regarding the new reporting requirements.

Who is affected?

Individuals (UK or non UK resident) and trustees now need to declare a disposal of UK residential property to HMRC and pay the appropriate Capital Gains Tax (CGT) within 30 days of the completion of sale.

A separate return needs to be submitted for each disposal, unless more than one property was disposed and completed on the same date.

What is a disposal?

The new rules apply to residential properties gifted or sold, so you don’t necessarily have to sell the property and receive proceeds to have a CGT liability.  If in doubt, please speak to your tax advisor to check if you will need to report the disposal.

How do I report the disposal to HMRC?

All individuals need a tax account regardless of whether they will file the return themselves or ask their agent to file it on their behalf. 

If you would like your agent to report the disposal on your behalf, you will have to request a ‘CGT on UK property reference number’ on your own tax account to provide to your agent and give permission for the return to be filed for you.

What if I am selling my main home?

Relief is available for individuals selling their main home and no CGT will likely be due as long as you lived in the property throughout the total ownership.  If full relief applies and there is no capital gain made, you do not need to report the disposal to HMRC.

Partial relief is available if you lived in it for some of the time or if you let out the property whilst also living there.  Please seek advice from your advisor if you need advice on selling a house you have not always used as your main home. 

Please also note that a married couple or civil partnership can only have one ‘main home’ between them for CGT purposes.

How do I calculate the tax?

The amount of CGT you pay depends on a lot of factors:

  • Your other taxable income
  • Your other capital disposals in the year prior to the disposal you are reporting
  • Capital losses you have brought forward from earlier years
  • Reliefs available to you
  • Annual exemption available to you
  • Allowable costs incurred during sale
  • Costs involved when you originally purchased the property
  • Capital improvements made to the property

Calculating the CGT due can be complex and we would recommend asking your advisor to calculate this on your behalf.  The gain will be taxed at a rate of 18% or 28%, or a blended rate between the two.  Your taxable income in the year determines the CGT rate because, if you are a basic rate taxpayer, you will pay CGT at 18% and a higher rate taxpayer will pay CGT at 28%.

The CGT is often estimated as the disposal may be early in the tax year before you are aware of your taxable income for the tax year. 

If the CGT was not correct, the difference will be calculated and paid when you file your self-assessment tax return. You can also amend the CGT return at any point once final figures are held, if estimated details were previously used.

It’s important to understand that a self-assessment tax return isn’t due to be filed until 31 January following the end of the tax year of the sale, so there can be a long delay in receiving a refund of tax overpaid or having to pay additional taxes if your calculation was incorrect. 

Example

Mr Walker sold a residential property on 1 July 2020. He declared a capital gain of £50,000 and paid CGT to HMRC in the same month. His self-assessment tax return for 2020/21 is not submitted until 31 January 2020, 18 months after the property sale. His actual CGT liability was higher than his original estimate and he will have to pay the additional tax to HMRC, at which point he may no longer have retained the sale proceeds or have cash available.

What if my property is overseas?

You are not required to report the disposal within 30 days if the property is not in the UK. If you currently file a UK self-assessment tax return, then the gain can be reported on your return as normal, otherwise you can report the disposal using the HMRC real time capital gains service.

Do I also need to file a self-assessment tax return?

If you usually submit a self-assessment tax return you will still be required to submit one. You must declare the disposal on your tax return, taking into account the CGT you have previously calculated and paid using the 30 day reporting service. If the originally calculated CGT was not correct, the difference will be calculated and paid when you submit your self-assessment tax return. Similarly, any overpayment will be refunded.

What if I miss the deadline? 

A late filing penalty of £100 will apply if you do not report the disposal to HMRC within 30 days of completion. The penalty increases to 5% of the total tax due, or £300 if greater, if the return is more than 6 months late.

Late payment interest will apply if the tax is paid late.

How can we help?

Our Private Client tax team are experienced in dealing with CGT disposals and can assist you with reporting the disposal to HMRC, as well as calculating the CGT for you. 

We have helped our clients understand the tax reliefs available to them, to ensure the CGT is calculated correctly including the appropriate relief, meaning they did not have cashflow issues by paying too much upfront and having to claim the refund back when they file their self-assessment tax return.

We understand the process of our clients setting up a tax account. Although it is not ideal to some who aren’t used to doing this, with our step-by-step instructions it is a pain free process. We then take the hassle out of their hands once the initial account set up is complete. Selling a house can be stressful, particularly if it is your current main home, and we can help take some of the admin burden from you by checking your CGT position and declaring the sale to HMRC on your behalf, if required.

Please do not hesitate to contact us at advice@taitwalker.co.uk if you require our assistance or have any queries.