The reporting and payment of capital gains tax on disposals of UK residential property changed with effect from 6 April 2020. In practice, the change means that where a sale of a UK residential property results in a gain, this must be reported to HMRC within 30 days following the date of completion and the tax due must be paid over by the same date.
This is purely a timing difference, as the gain would otherwise have been reported on your annual Self-Assessment tax return, and the tax paid to HMRC by 31 January following the tax year in which the disposal occurred. 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 reporting and payment deadlines have been accelerated.
It is important to note that if the deadline for filing the capital gains tax 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.
The new reporting regime catches any disposals of UK residential properties that result in a gain. Thus, disposals of overseas residential properties are not caught (although there may be filing requirements in the overseas jurisdiction) and neither are UK residential property disposals that result in a loss. Instead, these disposals are to be reported on your annual Self-Assessment tax return as normal.
If the gain is fully covered by a capital gains tax relief, it is similarly not caught. An example of this is the disposal of your main home where it is fully covered by Private Residence Relief.
However, the new rules will apply to the disposal of a UK second home or a UK investment property, whether or not you lived in that property at some point.
It is important to understand that the rules do not just apply to sales of property, they apply equally if you were to gift a property (e.g. to an adult child) even though you may not have received any money in exchange.
The tight new deadline means that there will not be much time for clients to pull the paperwork that is necessary to calculate the gain and prepare the necessary return. There may also be further questions as to whether and to what extent the gain may be covered by a capital gains tax relief.
At any point in the future, if you are actively considering disposing of a UK residential property (e.g. the property has gone on the market) please let us know at the time. This will allow more time to ensure that any real-time reporting requirements are met.
If you have any questions about these changes, please contact us.