New 30 days Capital Gains Tax payment deadline for UK taxpayers disposing of residential property.

New 30 days Capital Gains Tax payment deadline for UK taxpayers disposing of residential property.

Tue 15 Oct 2019

From 6 April 2020, UK taxpayers who dispose of residential property, will be required to report the disposal and pay the relevant Capital Gains Tax (“CGT”) liability within 30 days from completion.

How are residential property disposals reported currently?

At the moment, UK taxpayers report any disposal on their Self-Assessment tax return and pay any CGT by 31 January following the end of the tax year in which they made the disposal. As it stands, CGT may not be due until anywhere between 10 and 22 months after disposal so the new 30 day payment and reporting period is a significant change for those affected.

Will this impact me?

The new rules will only affect those who are selling a second home or a rental property where principal private residence relief is not available, regardless of how the property was acquired. For example, if you inherited a property and therefore paid no consideration for it, and subsequently sell the property, any gain may be taxable.

HMRC have brought these rules in as a number of people who aren’t required to submit a Self-Assessment tax return were missing the deadline for reporting and paying CGT on disposals of residential property.

How do we report it?

Taxpayers will be able to report the disposal via a “residential property return” within the deadline and those who jointly own a property will each need to submit a return. It is worth noting that taxpayers who are within the Self-Assessment system will still need to report the disposal on their tax return as well as completing the 30 day residential property return.

Are all disposals chargeable to CGT?

If the disposal of the property (taking into account any losses brought forward) will not be chargeable to CGT, for example, due to the gain being covered by an individual’s annual exemption, the disposal will not need to be reported, although you will still need to perform the calculations to come to this conclusion.

What happens if I made multiple disposals in a year?

It is not unusual for individuals to make multiple capital disposals in any given tax year. Previously, the individual would pay CGT on their net capital gains position (if an overall gain has been made) through their Self-Assessment tax return.

Following these changes, if a loss on disposal occurs more than 30 days after a property disposal, the individual will have to wait to apply for a refund for the overpayment of CGT until the Self-Assessment Tax Return is filed which could be 31 January following the end of the tax year of disposal causing both a cash flow issue and increased admin for the individual.

Is there any way I can avoid this?

There could be planning opportunities for individuals who are aware they may make a loss on a disposal in the year as they could delay selling residential property which could trigger a gain or bring forward the loss. Whilst this may not always be feasible, either for commercial reasons or otherwise, your professional advisor will be able to offer assistance around this.

How is the CGT rate calculated?

As the rate of capital gains tax is based on an individual’s level of income, an estimate of the total income will need to be made when calculating the liability. Whilst some individual’s level of income can be estimated with a certain degree of accuracy, many individual’s income fluctuates depending on bonuses or dividends received. This could result in an underpayment or overpayment of CGT at the end of the year when the final liability is calculated.

This then bodes the question over whether HMRC will be in a position to refund overpayments of capital gains tax in a timely manner and whether interest and penalties will be charged on underpayments.

There will be a two year grace period following the execution of the new rules to aid with the implementation however interest and penalties may be charged if the deadline is missed.

If you would like further assistance around the new reporting rules, please do not hesitate to contact a member of our Private Client Team at Mazars LLP. 

Paul Barham – paul.barham@mazars.co.uk

Sophie Mellor – sophie.mellor@mazars.co.uk