Have you recently sold a residential property in the UK? If so, it is important you understand new tax rules, which might mean you need to report and pay Capital Gains Tax within 30 days.
Over recent weeks COVID-19 has dominated the headlines and any new tax developments have mostly concentrated on incentives, grants and reliefs to assist businesses and individuals reeling from the strain of an extended lockdown.
One notable change for the current 2020/21 tax year is HM Revenue and Customs’ (HMRC) new Property Disposal Service, which appears to have quietly slipped through the net and many taxpayers are at risk of overlooking these new rules.
From 6 April 2020, individuals, trustees, executors, and personal representatives who sell UK residential property, which produces a chargeable capital gain:
- Must report the gain to HM Revenue Customs within 30 days of completion; and
- The tax must be paid at the same time.
This may accelerate the tax payment by up to 22 months. The rules apply to UK resident taxpayers as well as non-residents.
Interest and penalties will be charged if the return is late and these can have a significant impact.
Notable exemptions to the rules include property disposals by:
- Homeowners who sell their main home; or
- Individuals which result in a capital loss.
If the capital gain is sheltered by an individual’s Capital Gains Tax Annual Exemption it is also exempt from the new 30 day rules. (The Annual Exemption for the current 2020/21 tax year is £12,300.)
Where properties are jointly owned a Property Disposal Report for each owner must be made to HMRC within 30 days.
Whilst Capital Gains Tax is often simplified as a tax, which is charged on the difference between consideration received on the sale of a property and its original acquisition cost, in reality it is much more complex than this.
For taxpayers whose income fluctuates or dispose of multiple properties within a tax year, the calculation of Capital Gains Tax within 30 days of the sale’s completion date will often be a “best guess” and without expert advice many taxpayers will end up overpaying tax.
There is also an additional layer of complexity to consider if the property was the owner’s main home for part of the period of ownership.
For these reasons we urge vendors to seek expert advice on the sale of their homes to ensure they report gains correctly and most importantly do not overpay tax!
Please contact a tax advisor as soon as you accept an offer on your home to ensure you meet the new 30-day reporting and payment requirements and maximise the tax reliefs available to you.