NOV 2021 UPDATE: In the autumn budget, the Chancellor announced that the 30 day CGT deadline for reporting disposal of a property would be increased to 60 days. This change was effective from 27 October 2021.
New rules for Capital Gains Tax on residential property came into force in April 2021. So, what exactly are the rules, who is affected and how do you submit your return and make payment of tax owed? We’ve provided a round-up of the all the need to know information regarding 60-day CGT system when selling a residential property at a profit.
The New Rules in Summary
Under the new rules, CGT that arises following the sale of a residential property must be declared and paid within 60 days. The vendor (or agent on their behalf) must file an online return within 60 days of sale completion as well as making payment of the amount due within the same period. (When the rules were first introduced, the deadline was 30 days from completion, however following an announcement in the autumn budget, this was extended to 60-days from 27 October 2021.)
How CGT used to work
Before the rule changes at the start of the 20/21 tax year, sellers were still required to declare any gains made as a result of the sale of an asset, however this was done on their annual self-assessment tax return. This effectively meant that if the sale was completed at the start of a tax year, you had almost an entire year until the end of the tax period, followed by several more months before the tax return was due at the end of January. A much tighter time frame for payment of tax on gains made is now in place.
Disposals which now fall within the new 60-day rules
Disposals of UK residential property where the date of disposal (date of exchange of contracts) falls on or after 6 April 2020 and a CGT liability arises on the disposal are subject to the 60-day rules.
For the purpose of the 60-day rules, residential property is defined as any property suitable for use as a dwelling, or which is in the process of being constructed or adapted for such use. In the event of mixed use throughout the ownership period, only the residential aspect of the gain and the related CGT must be reported.
Examples of disposals which would be subject to the 60-day rules include:
- A private residence which has only been lived in for part of or none of the period of ownership
- A holiday home
- A rental property
The rules do not apply to other chargeable disposals such as:
- Commercial property
- Overseas residential property
Anyone selling their only main residence should not be affected if they have occupied the property throughout the period of ownership. Disposals which do not result in tax would also be excluded such as transfers of property between spouses or civil partners, or disposals which are fully covered by exemptions such as annual exemption or main residence relief.
What are the new filing requirements?
A digital service was developed by HMRC, through which CGT reporting should be completed.
The individual making the report will need to login via the Government Gateway and register for a Capital Gains Tax on UK Property account with HMRC. They can choose whether to complete the report themselves or to authorise a tax adviser to complete this on their behalf.
If you have determined that you need to make a payment, you have 60 days from the date of completion (not the date of exchange of contracts) to report the disposal and ensure the tax is paid.
Who do the rules apply to?
All of the below UK tax resident individuals are subject to the 60-day CGT rules
- Personal representatives
- Partners in partnerships and limited liability partnerships
- Joint owners of property
Non-UK residents are not subject to the 60-day CGT rules, however similar rules relating to residential and non-residential property disposals do apply and it is recommended that professional advice is sought in relation to such disposals.
Late Submission Penalties
The automatic HMRC late filing penalty is £100 for any returns over 60-days, and daily penalties come into effect for returns that are over 6 months late.
There is also a fixed penalty of £300 when a return falls 6 months late, and again at 12 months late.
How to calculate CGT due on residential property
To calculate how much tax you are liable to pay, you need to estimate how much taxable income you expect to earn for the year, as well as checking whether the gain made will fall into the basic rate tax band, or put you into a higher bracket.
In the event that your income falls into the basic rate bracket, CGT is payable at 18%, and if it falls into the higher tax bracket, CGT is payable at 28%.
What if you have sold a property at a loss?
In the unfortunate scenario that you have sold residential property at a loss rather than a gain, the upside of this is that you will not need to include the figures on your tax return, and you won’t need to file within the 60 days.
However, sales made at a loss are not always straightforward for reporting purposes. If you had already paid CGT on a previous property sale, and therefore need to claim repayment, you will still need to submit a self-assessment return.
Determining whether you need to submit a return is ultimately dependent on losses or profits in previous years. Losses can be brought forward so that any profit you make can be offset against the loss, therefore reducing the tax owed. Equally, if you have paid or submitted a return to pay CGT on a profit, which then resulted in a loss, you will be entitled to claim a refund for the difference.
A tax adviser can complete the necessary calculations, considering all potential and relevant gains/losses to ensure you are clear on your CGT liability.
How can we help
If you are planning to sell (or gift) residential property, you may want to consider professional tax advice to understand your position with regards to the 60-day rules. By engaging with a tax adviser and collating the relevant information in advance of a disposal, you will minimise the risk of missing the 60-day deadline and incurring an unwanted penalty.
If you have any questions regarding the 60-day Capital Gains Tax rules or need support filing a return or reporting a gain through the HMRC system, get in contact and our team will be happy to help.