From 6 April this year there are two phased in changes coming which will dramatically affect the tax paid on residential property sales by UK residents, individuals and trustees.
For personal taxpayers capital gains are currently reported in the annual self-assessment tax return and paid anywhere between 10 months and 22 months after the sale date of a property. The new rules after April bring the reporting and payment to just 30 days, giving the government a one-off bonus, an additional tax take of around one and a quarter year’s revenue. This is calculated to be worth around £5bn to £8bn.
Where CGT is due on the disposal of UK residential property (holiday home, buy-to-let etc) by a UK resident or trustees, a new online return will have to be filed, together with payment on account of CGT within 30 days of the date of completion of the sale. (Finance Act 2019 Schedule 2).
The new regime will apply only to taxable gains accruing on disposals of UK residential property made on or after 6 April 2020 (in the tax year 2020/21). It will mean that where contracts are exchanged under an unconditional contract in the tax year 2019/20 (6 April 2019 to 5 April 2020) but completion takes place on or after 6 April 2020 the 30 days rule will not apply. The gain should be reported in the 2019/20 self-assessment return and paid in the usual way.
If, on the other hand, contract exchange takes place on or after 6 April 2020, or where the contract is conditional, and the condition is not satisfied until after 6 April 2020, the 30 day rule will apply, an HMRC return must be filed and payment made within the 30 days deadline.
The changes to the CGT rules could to catch out unsuspecting owners of UK residential properties where their sales are subject to the tax, for example buy-to-lets and holiday homes, says accountants Kreston Reeves. Those not aware of the changes will be exposed to interest and penalties, says the accountants, who are business and financial advisers.
No return will be due where the gain is not chargeable, for example, because it is covered by Private Residence Relief – this applies to owner occupiers as their main residence. The changes are in line with the CGT rules which already exist for non-UK tax residents who dispose of UK property.
The normal rates of CGT applicable to UK residential property will apply – 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.
Jo White, Tax Director, Kreston Reeves says:
“Under the current regime CGT is paid by individuals anywhere between 10 and 22 months after the date of the disposal. From 6 April 2020, a payment on account of any CGT due must be made within 30 days of the transaction completing.
“Judging by the conversations we are having, many are still unaware of the changes, leaving them open to penalties and interest if they fail to meet their tax reporting and payment obligations.”
Taxpayers who file their return late may be subject to:
- Immediate late filing penalty of £100.
- Three months late – penalties of £10 per day for 90 days.
- Six months late – the greater of 5% of the tax due or £300.
- 12 months late – the greater of 5% of the tax due or £300.
HMRC could also charge penalties and interest for underpaid CGT.