Don’t forget to pay your capital gains tax within 30 days

Update

Since 5 April 2020, a UK resident who owes capital gains tax (CGT) on the sale of a UK residential property is required to record and pay the CGT within 30 days of the sale. From October 27, 2021, the 30-day term gets extended to 60 days for completion dates on or after that date. The 30-day deadline only applies to disposals done before October 27, 2021.

Important changes were made to the deadlines for filing and paying capital gains tax (CGT) on disposal of residential properties this year, e.g., 31st January 2023 for a disposal in the tax year ending 5th April 2022 to both UK and non-UK residents.

If you sell and make a taxable gain out of your property you now need to inform HMRC and pay any CGT due within 30 days (60 days w.e.f 27 October 2021) to avoid penalties.

A residential property is classed as a property that has been used as a dwelling at any period of time. The most common types of residential property gains come from the disposal of investment properties in the UK, such as a holiday home, inherited property, or a house that has been used as a rental property.

Capital gains tax is not applicable in cases where the residential property is the main ‘home’ of a person, and has been used solely as their main residence since its purchase. In this case, the tax is covered by private residence relief.

How much do I need to pay?

In the UK, you will pay higher rates of CGT on property than on other assets.

Basic-rate taxpayers will pay 18% on gains they make when selling property, and higher or additional-rate taxpayers will pay 28%.

And capital gains will also be included when HMRC works out your tax status for the year, so be aware that this could push you into a higher tax bracket.

UK taxpayers have an annual CGT allowance, and couples who jointly own assets can combine this allowance. However, this allowance will not be carried forward into the next tax year, so it’s advisable to use it where possible.

How is capital gains tax calculated?

Capital gains tax is only charged on the gains you make, not the amount the property is sold for.

It’s a matter of deducting the amount you originally bought the property for the sales price, and taking off any legitimate costs involved with buying and selling, such as fees, stamp duty, and improvements to the property.

However, you will not be able to deduct costs involved with the upkeep of a property or mortgage interest.

You can offset losses you might make when selling other assets, and these can be carried forward. Basically, if you make a loss when selling one property in your portfolio, this will increase the tax-free gain you can make when selling another. Losses can be claimed for up to four years after they were made.

CGT late filing penalties

When a return is not filed within 30 days (60 days w.e.f 27 October 2021) of the sale completion date, an automatic late filing penalty of £100 will apply. If the return is more than three months late, daily penalties can apply.

At dns, we can help you avoid a penalty and meet the 30-day deadline (60 days deadline w.e.f 27 October 2021). Please do get in touch to discuss what’s needed, and the steps you can take to ensure we have the required information in time.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.