Last year, the government introduced a new reporting requirement for UK residents disposing of residential property on or after 6 April 2020.
Where a capital gains tax (CGT) charge arises, taxpayers now need to submit a return (UK property CGT return) to report the disposal of UK residential property and make a payment on account to HM Revenue & Customs (HMRC) of the estimated tax liability.
Update following 2021 Autumn Budget
The Autumn Budget brought a slight amendment to the time limit for reporting the disposal of UK residential property and making payment of the tax due to HMRC.
Where a disposal (the date contracts are exchanged) takes place before 27 October 2021, the disposal must still be reported to HMRC, and the estimated CGT paid within 30 days. Where the disposal takes place on or after 27 October 2021, the deadline for reporting and paying the CGT is extended to 60 days.
HMRC will charge taxpayers penalties where the return is filed outside the 30 or 60 day deadline. Interest will also be charged for late payment of the CGT due.
In addition, the Autumn Budget confirmed that, for mixed-use properties disposed of by UK residents, only the portion of the gain that relates to the residential part of the property should be reported on a UK CGT property return and the portion of the CGT due on the residential part of the property paid to HMRC.
What disposals fall within the new UK CGT property reporting regime?
The rules apply to disposals of UK residential property where the date of disposal falls on or after 6 April 2020 and a CGT liability arises on the disposal.
The rules apply to direct interests in residential property only, for example the sale or gifting of a house. Disposals of indirect interests, such as shares in a company which holds UK residential property, are not caught.
The definition of residential property includes any property suitable for use as a dwelling, or which is in the process of being constructed or adapted for such use.
Where a taxpayer is claiming Private Residence Relief on the sale of their only or main residence and provided the property has been occupied by them throughout the period of ownership, they will not be required to file a UK property CGT return.
If the property was not the taxpayer’s main residence or was their main residence for part of the period the property was owned, then a UK property CGT return will be required if there is CGT to pay on the disposal, after deducting any available reliefs.
Who is affected?
-Individuals;
-Trustees;
-Personal representatives;
-Partners in partnerships and limited liability partnerships; and
-Joint owners of property.
If a taxpayer does not normally file a self assessment tax return and they submit a UK property CGT return, they will not need to file a self assessment tax return for that year – assuming they have no other reason to do so.
However, if a taxpayer normally files a self assessment tax return, then they will also need to report the gain on their annual self assessment tax return.
Non-UK residents
The reporting and taxation of disposals of non-residential property, and of property located outside the UK, are unaffected by the new rules.
There are no changes to the rules for non-UK residents who dispose of UK property (both residential and non-residential). Non-UK residents are still required to file a non-resident CGT return and pay CGT within 30 days of disposal.
What is the procedure for reporting the disposal to HMRC?
HMRC has developed a new digital service, through which all UK CGT property returns should be made.
To submit a return to HMRC, individuals and trustees will need a government gateway account and will then need to register for a CGT on UK property account with HMRC. They can choose to report the disposal personally or authorise a tax adviser to report the disposal on their behalf.
Once the return is submitted, HMRC will issue a payment reference, under which a payment on account of the estimated CGT arising from the disposal can be made.
How is the CGT payment on account calculated?
A tax computation must be prepared to calculate the estimated tax due. The payment on account must then be made to HMRC within 30 days for disposals pre-27 October 2021 and 60 days for disposals on or after 27 October 2021.
In calculating the gain arising from the UK residential property disposal, a taxpayer can take into account their CGT annual exemption (£12,300 for individuals in 2021-22) and any allowable capital losses arising prior to the disposal, including brought forward losses from earlier years. The tax computation cannot include capital losses that arise later in the tax year.
A computation of the final tax position will normally be undertaken when preparing the taxpayer’s self assessment tax return. This will take into account factors such as losses realised after the property disposal that were not reflected in the original tax estimate. The CGT paid is treated as a payment on account of the final self assessment liability.
Amending the UK property CGT return
In the case where the taxpayer is due a refund because they have paid too much on account, the UK CGT property return will need to be amended within 12 months following submission of the original return and before the current year’s self assessment tax return is submitted. There is currently no facility to offset the refund against the taxpayer’s total tax liability for the year.
If you would like to discuss the reporting time extension please call one of our team on 01482 770739.