New CGT Returns Required From 6 April 2020
As of 6 April 2020, disposals of residential property and the Capital Gains Tax (“CGT”) charged must be reported and paid within 30 days of the completion date. This will be completed through the new CGT on UK property service, which will be accessible through www.gov.uk from today. The new rules apply to individuals, personal representatives and trustees (i.e. not companies).
Prior to 6 April 2020, if a taxable gain arose when a UK resident disposed of an interest in UK residential property, this had to be reported through a Self-Assessment tax return. This meant that the disposal and Capital Gains Tax (“CGT”) had to be reported and paid by 31 January following the tax year in which the disposal took place.
Under the new rules, UK residents who are already registered for Self-Assessment and submit tax returns will also need to report the taxable gain on their tax return for the tax year when the disposal takes place. However, their total tax due will be adjusted to account for any payments on account for CGT already made through the new digital service.
UK residents who would not normally be required to submit tax returns for any other reason are no longer required to register for Self-Assessment in order to report and pay for a one-off residential property disposal – they can simply use the new digital service.
Non-UK residents already currently report disposals within 30 days. However, they are currently able to delay the payment of CGT in line with the Self-Assessment deadlines. From today, they will no longer be able to defer the payment and they must use the new service to report the disposal and pay the CGT within 30 days. The new service will replace the existing online return for non-resident CGT on UK property.
In order to allow for a period of adjustment, HMRC has announced that this new rule should be applied lightly for the first three months; therefore, late-filing penalties will not be issued for residential property CGT returns received late up to and including 31 July 2020 (for transactions completed between 6 April and 30 June 2020 and reported up to 31 July 2020). Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 days.
It is important to note that not all capital gains will need to be disclosed on the new digital service. These include gains covered by principal private residence relief, transfers between husband and wife/civil partners, gains covered by any losses incurred before the disposal and gains covered by the Annual Exempt Amount. (£12,300 for 2020/21). It may also be beneficial to file losses through the new digital service. Furthermore, mixed gains (i.e. where a property is both residential and non-residential) will need to be separated out as only the residential property needs to be reported.
The calculation of taxable gains on the sale of residential property and the available reliefs can be very complex. Therefore, if you are unsure about this or would like further guidance on how to use the CGT on UK property service, please contact a member of our team.
Tax Update: 2020/21 30-Day CGT Deadline (19 February 2020)
Update: Higgins v HMRC – Where do I begin? (6 December 2019)
Off-Plan Tax Trap: PPR Relief & “Period of Ownership” (25 October 2019)
Open to Interpretation – Relief on Sale of Main Residence (16 August 2019)
HMRC Investigates Sales of Second Homes (24 July 2019)