Pay capital gains tax on residential property in 60 days

From 6^th April 2020, important changes have been made to the deadline for filing and paying Capital Gains Tax (CGT) on disposal of residential properties. It is applicable to both UK and non-UK residents. These changes do not apply, if the residential property is entirely used as the private residence of the owner during the time it was owned.

What are the changes?

UK residents disposing of UK residential properties

Any UK resident who sells or disposes of their residential property in the UK and makes a taxable gain out of it needs to tell & pay capital gains tax (CGT) to HMRC within 60 days (30 days for properties sold before 27 October 2021) from the date of completion.

It is to be done with the help of online service started by HMRC. This is not applicable in case the residential property is the main residence of a person and used solely for residential purpose since the time it was purchased. Capital gains tax is exempt in this case as it is covered by private residence relief. Read more information about private residence relief here - https://www.dnsassociates.co.uk/blog/private-residence-relief-changes-to-the-ancillary-reliefs

Non-UK residents disposing of UK property or land

As per changes in CGT rules from 6th April 2020, any Non-UK resident who sold or disposed of any UK property or land (whether eligible for CGT or not) needs to report HMRC within 60 days (30 days for properties sold before 27 October 2021) from the date of completion of disposal.

After the new CGT rules implementation on 6th April 2020, there is no option left to postpone CGT payment via self-assessment tax return and it becomes mandatory for Non-UK residents to report and pay any owed tax to HMRC within 60 days (30 days for properties sold before 27 October 2021) period.

FAQs

Q1 - I am a UK resident and want to sell a residential property situated in UK, what are the changes?

Ans - As per the new CGT rules implementation from 6th April 2020, you need to tell HMRC about the gain you earned by selling or disposing of your residential property and must pay the due tax amount within 60 days (30 days for properties sold before 27 October 2021) from the date of completion of disposal.

Q2 – What if I don’t live in UK?

Ans – Hence, you cannot postpone or delay CGT payment via self-assessment tax return and must pay it within 60 days (30 days for properties sold before 27 October 2021) from the date of completion of disposal.

Q3 – What do you mean by a UK residential property?

Ans – A residential property is a property that has been used as a dwelling at any period of time. Ex – Freehold of a property. Most common types of residential property gains arises after disposing of the following investment properties –

1. Owned holiday home in UK.
2. Inherited house or property.
3. House you have rented to some other person.

Q4 – Are all disposals of UK residential properties covered under these new rules?

Ans – In case you are a UK resident and do not come under CGT rules, you don’t need to pay any CGT to HMRC. It may be due to the gains (Inclusive of residential property gains earned in a tax year) which you have earned are within the annual exemption limit or you are eligible for private residence relief or due to the property transfer made to your spouse or civil partner. In case you acquired a UK residence for developing and selling it later, it will be considered as trading transaction and any profits earned by you will be chargeable to income tax. In case it is not a trading transaction, CGT rules will be applicable.

Q5 - When do I have to tell and pay CGT to HMRC?

Ans – You must tell and pay the due CGT amount to HMRC within 60 days (30 days for properties sold before 27 October 2021) from the completion date.

Q6 – Does the 60 days period (30 days for properties sold before 27 October 2021) only apply to residential property disposals?

Ans – 60 days period (30 days for properties sold before 27 October 2021) is only applicable in the following cases –

1. Selling or disposal of UK residential property by UK residents.
2. Direct or indirect disposals of all properties including land by Non-UK residents.

Q7 – What if I sell the house I live in?

Ans – If you are selling the house you are living in, you don’t need to pay any CGT. It is due to the applicability of private residence relief, whereas if you have let out part of your house or used part of it for business purposes you may be required to report and pay tax, you can find out the same on https://www.gov.uk/tax-sell-home.

Q8 – How do I tell HMRC about the capital gain and CGT liability on the disposal of a residential property in UK and how do I pay the tax?

Ans – If you are a UK resident and sell or dispose of any UK property, you need to tell HMRC about the capital gain and pay the due tax amount within 60 days (30 days for properties sold before 27 October 2021) of the sale completion with the help of new online service introduced by HMRC.

Q9 – What if I am a UK resident and sell property abroad?

Ans – If you are a UK resident and sell your property abroad, you don’t need to tell HMRC and pay tax on your capital gain you made on that transaction within 60 days (30 days for properties sold before 27 October 2021) from the completion date.

Q10 – What happens if I don’t tell HMRC about the capital gain on a UK residential property within 60 days and there is a CGT liability?

Ans – In case you don’t tell HMRC about the capital gain after selling or disposing of UK residential property, you are liable to pay late filing penalties. As of now, there is no late filing penalty imposed by HMRC and allowed some time so that taxpayer adjusts themselves properly. Transactions completing after 1st July 2020 will receive late filing penalty in case if it is not reported within 60 days. You are also liable to pay interest on the transaction which has not been reported after 60 days.

Q11 – What about other capital gains?

Ans – Capital gains are the gains arising from the art and antiques work, any personal possession valued at £6,000 or more (car not included), crypto assets (bitcoins), shares or business assets comes under the category of other capital gains. They need to be disclosed as normal on your self-assessment, where applicable.

Q12 – Do I still have to complete self-assessment tax return?

Ans – Yes, you are still required to complete a self-assessment based on your personal circumstances. If you are just reporting a ‘one-off’ disposal and there is no other income to be reported, then a self-assessment may not be needed.

Q13 – What if I sell a property and don’t make a taxable gain?

Ans – The 60-day (30 days for properties sold before 27 October 2021) disclosure deadline only applies to property disposals that create a taxable gain. For instance, if you make a loss on the selling of a buy-to-let property, you will not have to make a return within the 60-days (30 days for properties sold before 27 October 2021). Similarly if the property has been your home and after the application of principal private residence relief the gains is exempt, you don’t need to file a return within the 60 days (30 days for properties sold before 27 October 2021).

Q14 – How do I work out how much tax is payable?

Ans – As part of the 60-day (30 days for properties sold before 27 October 2021) submission to HMRC, you are required to estimate the amount of CGT payable based on your present understanding of the factors that affect this liability. As your other earnings will determine if the CGT you pay is at 18% or 28% - or a mix of the two – estimating these other earnings and getting the number crunching right will be no mean feat.

During the 60-days (30 days for properties sold before 27 October 2021) window the process will be:

1. Prepare a formal computation and a calculation of the CGT due, and submit both to HMRC, and
2. Pay any CGT this computation reveals.

At the end of tax year during which you made the disposal you will also need to include the computation again as part of your actual return. This annual confirmation of the gain may result in an over or under payment of tax as the annual return will be based on actual data and not the estimated data used to comply with the 60-days rule (60 days rule w.e.f 27 October 2021)

How dns can help?

dns can help you meet the 60 days deadline if you are disposing a property after 6 April 2020 and 60 days deadline if disposing after 27 October 2021. This can only be done if we have the required information about the disposal on the day you sell. It is recommended to follow the below steps to ensure the deadline is met –

• Prior to the completion date, you are requested to advise us which property is to be sold and the estimated selling price and sales costs.
• Kindly introduce us to your Solicitor/Conveyancer or authorise us to chat with them and provide us the following important details about your property to expedite the process –
  1. Which property you sold?
  2. Property disposal date?
  3. Selling price?
• We will immediately compile the data we have about the property (if we hold this information) and confirm with you if it is correct. This will not only include the purchase price, but also improvements made. Otherwise you will be required to provide us the purchase costs (including legal and stamp duty) and the cost of any improvements to the property.
• We will use all this information to prepare a draft computation (based on our prior knowledge of your tax affairs) and advice you of the possible CGT payable 60-days (30 days for properties sold before 27 October 2021) after the sale is completed.
• When the sale does complete, we can then adjust the numbers for any final changes in the sale particulars and agree the computation with you. Once agreed, we can file the CGT computation with HMRC and advise you when and where you should pay any tax due.

In case you need more information regarding this big change and filing on your CGT return, kindly call us on 03330 886 686 or you can also e-mail us at enquiry@dnsaccountants.co.uk

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.