The reporting obligations for taxpayers, relating to the disposal of residential property and the payment of any CGT liability, has changed.
Previously, a UK resident individual (or trust) disposing of UK property that results in a taxable gain was required to report that gain on their annual UK tax return. The deadline for reporting the gain and paying the tax due was 31 January following the year of the disposal. However, the law has now changed.
From 6 April 2020, upon the selling of a UK residential property, all vendors must:
- File a 'Residential Property Return' within 30 days of the completion date of the transaction. Penalties will apply if the return is filed late. HMRC is, however, allowing a period of time to adjust and will not issue late filing penalties for returns received late up to and including 31 July 2020.
- Pay an estimate of the capltal gains tax within 30 days of the completion date. This will be treated as a 'payment on account' against their total income tax and CGT liability for that year, calculated when the annual Self-Assessment Tax Return is submitted. Interest will accrue if the tax remains unpaid after 30 days.
Inintially, the vendor will therefore be required to make an informed guess how much tax is payable. This will depend on several factors such as personal income which may have to be estimated, potentially resulting in an under or overpayment. Final figures will likely not be known until the financial year has ended and the annual tax return is prepared. At this point the accurate capital gains liability can be calculated which could result in a refund or an additional payment being due. If additional tax is due on filing, interest will be payable at the standard rates set by HMRC.
There will be some exceptions to the reporting requirement. Some common examples of where a return will not be required are:
- Where the gain is covered by Principal Private Residence Relief for the duration of the taxpayer's ownership of the property.
- If a loss arises on the sale of the property.
- Where the gain is sheltered by capital losses crystalised before teh sale takes place.
- Where the gain is small enough to be covered by the individual's annual exemption for the year of disposal.
It should be noted that the return and payment on account will not be required where the property disposed of is not residential property or where the property is situated outside the UK.
The above list is not exhaustive, therefore, if you have any doubt over whether a residential property return will need to be filed, we suggest you contact your accountants who should be able to provide you with assistance in calculating your CGT liability and fulfilling your reporting requirements.