Residential property and Capital Gains Tax

Now that the Government has chosen to restart the housing market in England it is an opportune time to remind prospective sellers of changes to the capital gains tax treatment of the sale of residential properties. 
From 6 April 2020, HMRC has introduced a 30-day reporting requirement for disposals of residential properties where a taxable capital gain arises – this can include gifts where no consideration is payable. Although HMRC has said they will take a light touch in the short term, the issues around the Coronavirus outbreak do not mean that the new requirements can be overlooked.

When does Capital Gains Tax apply? 

Capital Gains Tax (CGT) is a tax on the profit when you sell (or 'dispose of') something (an 'asset') that has increased in value. It is due on any such disposal (unless an exemption applies) and under the new rules is payable within 30 days after the date of completion where the asset sold is residential property. Most sales of residential property are exempt from CGT because the property has been the seller’s main residence throughout their period of ownership. However, there are a number of situations where a taxable gain can arise – for example, if the property has been let for part or all of the period of ownership, or part of it has been used for business purposes.

What do you need to do?

Where a taxable capital gain arises it should be reported online to HMRC within 30 days of the sale completing. There are specific and potentially complex rules which apply in calculating the gain, and it is necessary to make some assumptions about the seller’s tax position over the rest of the year. An estimate of the tax due on the gain will also need to be paid within the same 30 day period. 

What happens if the deadline is missed?

HMRC have announced a 'soft landing' period of three months, where they will not issue late filing penalties for CGT payment on account returns received late up to and including 31 July 2020. For UK residents, this means transactions completed between 6 April and 30 June 2020 and reported up to 31 July 2020. However, interest will accrue on any CGT overdue. Late filing penalties and interest will apply to any returns for disposals on or after 1 July 2020 – even missing the deadline by 1 day will result in a penalty.

Talk to us about your Capital Gains Tax!

The process of calculating the gain is complex and there are certain administrative steps that need to be taken before a return can be filed. As a result, it is important that you tell us as soon as possible when you know that you will be disposing of a residential property. We can then advise you on the information required to ensure you meet the deadline.

If you are planning to sell or otherwise dispose of a residential property, call us and ask to speak to our Tax Team on 01743 273273.

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