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Are you in the process of selling a residential property?

New legislation will require all residential property sales that produce a capital gain to be reported and tax paid within 30 days of completion.

From 6 April 2020, the time limit for reporting a capital gain and paying any subsequent tax as a result of the sale of residential property in the UK is changing. Like any other tax, capital gains on residential property are reported, on the seller’s annual Self-Assessment tax return, with tax due by 31 January following the tax year of sale. This leaves a generous window of between 10 and 22 months after the sale before the tax is due to be paid. 

However, new legislation introduced will now require all residential property sales that produce a capital gain to be reported and tax to be paid within 30 days of completion of the sale. The disposal will still need to be reported on the relevant Self-Assessment tax return, giving rise to two layers of reporting.

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Akin Coker

+44 (0)20 7556 1332
cokera@buzzacott.co.uk

From 6 April 2020, the time limit for reporting a capital gain and paying any subsequent tax as a result of the sale of residential property in the UK is changing. Like any other tax, capital gains on residential property are reported, on the seller’s annual Self-Assessment tax return, with tax due by 31 January following the tax year of sale. This leaves a generous window of between 10 and 22 months after the sale before the tax is due to be paid. 

However, new legislation introduced will now require all residential property sales that produce a capital gain to be reported and tax to be paid within 30 days of completion of the sale. The disposal will still need to be reported on the relevant Self-Assessment tax return, giving rise to two layers of reporting.

Key records to hold

The need for property owners to have up to date records in advance of the sale is now more crucial than ever, given the short window for reporting. If the return is not submitted in time, sellers respectively risk penalties and interest for late filing of the return and late payment of any tax on the capital gain. Essential records include, but are not limited to:

  • The date the property was acquired 
  • The acquisition cost 
  • Improvements made during the period of ownership and, 
  • Disposal proceeds and associated costs.

The new rules may require taxpayers to estimate their income for the financial year if they want to report the gain as accurately as possible. This is because basic rate taxpayers (with gross income less than £50,000) may have at least a portion of the gain taxable at the basic rate of Capital Gains Tax (CGT). Gains on residential property are taxed at 18% for basic rate tax payers and at 28% for higher and additional rate tax payers. 

It is of course possible to sell your home and not have a chargeable gain in excess of the CGT annual exemption, in which case there would be no requirement to report the disposal. This could be the case where either the property hasn’t appreciated in value or the gain is wholly or partly covered by a relief such as Principal Private Residence (PPR) relief or Lettings Relief. 

Reduction in PPR for final period and lettings relief 

Another impending change which takes effect from 6 April 2020 will see less relief available to residential property sellers claiming PPR Relief for the final period of ownership. Previously, owners could claim exemption for the final 18 months of ownership regardless of their actual occupation (so long as the property had been occupied as their main residence at some point in the period of ownership) but this will be restricted to nine months from 6 April 2020.

Lettings Relief is currently another relief available to the taxpayer, which has also been subject to change from 6 April 2020. This now only applies where the property owner occupies the property alongside the tenant. 

Conclusion

These are important reforms which present traps for the unwary and people who cannot retrieve all the records in time for the 30 day deadline. Those selling second homes and individuals with gains which are not covered by the annual exemption, or capital losses brought forward, are at risk of the new reporting requirements and early payment of CGT. Considering the combined effect of the forthcoming changes, there will be an overall increase in the number of residential property owners who will be liable to pay CGT.

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