Disposals of UK residential property — new reporting regime

29/04/2022

There has been a change to the law in relation to the reporting and paying of Capital Gains Tax (CGT) in relation to disposals of UK residential property.

What has changed?

This change came into effect on 6 April 2020 and means that where the disposal results in a taxable gain, this must be reported online to HMRC and the tax due paid within 60 days of completion.

Previously, the gain would have been reported on an individual’s Self-Assessment tax return and the tax paid over to HMRC by 31 January following the tax year in which the disposal occurred. In some cases, this could give taxpayers a substantial amount of time to pay the tax due.

The law has not changed any of the rules in relation to which gains are taxable or the rate of tax that is payable. The only difference is that the deadline has been brought much closer.

If the deadline for filing the CGT UK property disposals return is missed, an automatic £100 penalty will be charged. Further penalties of £10 per day are applied if the return is still outstanding after three months.

What disposals are caught?

The new reporting regime catches any disposals of UK residential properties that result in a gain and there is tax to pay. Therefore, disposals of overseas residential properties are not caught (although there may be requirements in the overseas jurisdiction) and neither are UK residential property disposals that result in a loss. Instead, these disposals will be reported on the Self-Assessment tax return as normal.

This also means that if the gain is fully covered by a CGT relief, it is not caught. An example of this might be a disposal of your main home, which is fully covered by Principal Private Residence Relief or if the gain is covered by the annual exemption.

However, it would apply to the disposal of a UK second home or a UK-let property, whether or not the property was occupied as a main residence at some point.

The rules also apply to any gift of a property (e.g. to an adult child) even though you may not have received any money in exchange. The exceptions are where property is disposed of via a transfer to a spouse or civil partner.

What issues does this raise?

The tax report and pay return must include a calculation of the chargeable gain and the amount of the UK capital gains tax due.

This requirement to report and pay CGT liabilities within 60 days of completion leaves limited time to assess the actual gain that results from the transaction.

As a consequence, it now makes sense to undertake these calculations that would previously have been dealt with after completion beforehand.

A further complication is that CGT interacts with your income tax band. If your income fluctuates or is close to the higher rate threshold, it may be difficult to calculate the correct amount of capital gains tax due.

Non-UK residents must also report all sales or disposals of UK property including land within 60 days, even if there is no tax to pay or they have made a loss.

For advice CGT planning and filing CGT returns, please contact us today.