New rules were introduced in April 2020 that require UK individuals who dispose of residential property resulting in a capital gains tax liability to both report this to HM Revenue & Customs (“HMRC”) and pay the tax within 30 days of completion. Despite extending this deadline to 60 days for completions after 27 October 2021 a number of taxpayers continue to miss the deadline, often because they are unaware of the new rules.
HMRC charge late notification penalties as follows: –
• Up to 6 months late – £100
• 6 – 12 months late – additional £300 or 5% of the tax owed (whichever is greater)
• More than 12 months late – additional £300 or 5% of the tax owed (whichever is greater)
Late payment interest is also currently charged at 7.5%
Which types of property are caught?
The rules apply to residential property which effectively means any property intended to function as a dwelling. Examples might include a holiday home, a let home or an individual’s home (where this has not always been their main residence). A disposal includes a sale to a third party or a gift to a connected party like a son or daughter.
Are all residential gains reportable?
An individual only needs to report a property disposal to HMRC where there is a tax liability. The following examples are therefore unlikely to need to be reported within 60 days of completion: –
• The gain is less than the individual’s annual exemption (reduced to £6,000 from 6 April 2023 and reduced again to £3,000 from 6 April 2024)
• The owner has lived in the property throughout their period of ownership (and the garden is not too large)
• The individual has capital losses brought forward which cover the gain
• The property is disposed of to a spouse
Where there is a mixed-use property, for example a let cottage and farmland, then only the tax on the cottage is reportable and payable within 60 days. Any tax due on the land is reportable and payable by the normal self-assessment deadline of 31 January after the tax year of disposal.
Do the new rules just apply to UK individuals?
The new rules also apply to Estates and Trusts.
Those who live outside the UK and sell any type of UK property have additional reporting obligations to HMRC.
If I complete an annual personal self-assessment tax return do I still need to make a 60-day report?
In most cases the answer is yes!
James Cornthwaite FCA CTA
Scott & Wilkinson
Tel: 01524 67111