Selling or transferring a UK property? Make sure you know about the new CGT rules.
If you are UK tax resident and selling or transferring UK property there is an important change to the rules on reporting and paying Capital Gains Tax that are about to come into force.
From 6th April 2020, UK tax residents who sell/transfer UK residential property will be required to report and pay any Capital Gains Tax (CGT) due within 30 days of the date of completion.
Under the current rules, you would report your capital gains on your tax return and pay any tax through the self-assessment system.
For example, if you sold a residential property on 6th April 2019 you have until 31 January 2021 at the latest to declare the Capital Gains and pay the tax. The new rule closes the original 21 month window reporting and payment window.
What counts as a sale or transfer?
Included is a sale to a third party at market value; a transfer to a relative; or even a sale or transfer of part of the property.
How to calculate the gain and tax
In broad terms, a gain is calculated by taking your sale proceeds, and deducting:
The purchase price
Costs of selling the property (estate agent's fees and solicitors' fees., etc)
Costs of buying the property (including Stamp Duty and solicitors' fees., etc )
Enhancement costs (costs of building extensions etc)
The gain is further reduced if the property owner qualifies for Principle Private Residence Relief (PPRR), and Lettings Relief (subject to recent change with additional conditions to meet). If the property is jointly owned, each individual’s capital gain will be base on their individual circumstances.
The capital gain calculated is reduced by the annual CGT exemption of £12,300 (2020-21 rate) which is available to each individual.
If you sell the property at under market value or have gifted the property, the true market value is deemed proceeds to be used in the calculation.
The rate of CGT payable is up to 28% depending on other taxable income.
How to Report
Tax payers will have to register for HMRC’s digital service designed to report CGT on UK residential property. You must do this even if you use a tax adviser to report the gain on your behalf.
Reporting your CGT within 30 days will, in some circumstances be a best estimate of your CGT liability based on your circumstances at the time. HMRC have a system in place to allow adjustments so that the correct tax is paid.
If you need to submit Self Assessment tax returns
If you are already reporting through self assessment, you will need to report the gain again, along with other gains and income before the usual deadlines, showing the tax already paid. The self assessment effectively irons out any over or underpayment made due to changes in your circumstances in the tax year.
If you are not within the Self Assessment tax regime
If you are not within the self assessment tax regime, you have upto 1 year after the initial submission date to submit an amended CGT Return through the digital service. HMRC will treat any declaration you make as final on the first anniversary of the initial submission.
When does the 30 day rule not apply?
The 30 day rule will not apply in the following cases:
- If you have calculated your gain to be less than the annual exemption of £12,300, there is no tax to pay so no reporting is required
- If you have losses from previous years that can be carried forward and offset against the property gain to bring it down to below the annual exemption.
- If you have crystallised capital losses in the same tax year, but prior to the disposal of the residential property, and those losses can bring the gains to below the annual exemption.
- If the transfer is to your spouse (or civil partner)
- If you have exchanged unconditional contracts prior to 5th April 2020, but have completed after.
We suggest you seek advice for your tax adviser on points 1-3 above.
Penalties for missing the reporting deadline
If you miss the reporting deadline, the penalties will be as follows:
One day late £100
Six months late an additional £300 or 5% of the tax due (whichever is greater)
12 months late an additional £300 or 5% of the tax due (whichever is greater)
In addition a late payment of tax will attract interest and penalties based on the tax liability due.
The late payment penalties are:
5% of the tax unpaid if 30 days late
A further 5% if six months late, and
a further 5% if 12 months late.
What should you do next?
It is recommended that you contact your tax adviser as soon as you have decided to sell/transfer the property, as the 30 day deadline is very short and as you are likely to know most of the amounts required for the CGT calculation, including a fair idea of the proceeds you may receive. This will help ensure that the deadline is not missed.
If you need assistance with the calculation and reporting of the sale or transfer of a UK residential property or any related matter please contact us