Capital Gains Tax & UK Residential Property
Late last year HMRC issued some 14,000 enquiry letters to individuals that sold UK residential property during the 2018/19 tax year. HMRC believed that those individuals may not have entitlement to the CGT exemption for UK residential property used as the seller’s main private residence.
These ‘nudge letters’ from HMRC were more of a ‘fishing for information’ expedition – as HMRC could not have known the full details of those sales and would not have known if the main private residence CGT relief was not available to the sellers. However, HMRC is as ever looking to increase the CGT take and will continue to go after those sales of UK residential properties that have not been filed to HMRC.
This is the case given that, for sales of UK residential properties from 6 April 2020 by UK resident taxpayers, the CGT filing and payment to HMRC rules have been brought into line with such filing rules that have applied to non-residents since 6 April 2015. The new CGT rules for UK residents disposing of UK residential property are detailed below.
What has changed since 6 April 2020 for CGT and UK residential property?
The main change is in the timing of filing and paying any CGT to HMRC when a UK resident sells a UK residential property. Instead of filing the CGT computation and paying any CGT under the annual Self-Assessment rules i.e. you need to file and pay the CGT by the 31 January, following the end of the tax year during which you contracted to sell the UK residential property.
For sales contracted for after 5 April 2020, you are required to file the CGT computation -taking into account any known CGT losses and the annual CGT exemption allowance (currently £12,300 )- and pay any CGT due to HMRC within 30 days of the property’s sale completion date. A far more onerous task and a cash flow cost if CGT is payable!
Clearly, the above mentioned new CGT rules can only be an estimated position – this includes estimating if you have any basic rate income threshold available to reduce the 28% CGT rate to 18%. Any CGT paid will be treated as a payment on account for the final CGT liability e.g. the taxpayer may have CGT losses that will crystalise post the sale of the UK residential which can be used to reduce the final CGT bill.
However, the taxpayer will need to wait until they file their Self-Assessment Tax Return for the tax year during which the UK residential property was sold before finalising their CGT liability position to include claiming from HMRC any CGT overpaid.
Are there other compliance changes I should know about?
The other issues is that before a UK resident taxpayer can file a CGT return, they must create a new online UK property account with HMRC. This is done using a personal HMRC Gateway Account ID, which you may have to create as a first step whether or not you are already registered with HMRC for Self-Assessment.
This new online account is to enable a CGT reference number, which can be issued to the taxpayer and then passed on to their Agent. The Agent can then go through the process to be registered as their Agent, even if they have already registered with HMRC as the taxpayer’s Agent for Self-Assessment (you really couldn’t make this up!).
What is the HMRC penalty if the online CGT Tax Return is not filed to HMRC within 30 days of the sale completion date for a UK residential property?
First – the good news. If you make a gain on the sale of a UK residential property then the above detailed HMRC CGT filing and payment compliance rules do not apply – if the gain is reduced to £Nil due to CGT reliefs or losses.
The CGT reliefs include the Principal Residence Relief (PPR) and the annual CGT exemption allowance. In the part 2 blog post on CGT we will deal with PPR and some other aspects of what is accepted by HMRC as a main residence, and thereby obtaining PPR.
Now, the bad news. The HMRC financial penalties for late filing and payment of CGT on the disposal of a UK residential property (from 6 April 2020) are:
- Late filing penalty – if the online CGT return is filed later than 30 days from the sale completion date then there is a £100 penalty
- A further penalty is charged at either 5% of the CGT due or £300 if the CGT return is filed after 6 months from the 30 days filing deadline
- These rates of penalties are repeated if the CGT Return is not filed within 12 months of the 30 days filing deadline.
Furthermore, HMRC can also charge 90 days at a daily rate of £10. An appeal can be lodged by the taxpayer against the HMRC late filing penalties if the taxpayer has a reasonable excuse for the late filing of their CGT Return.
As can be seen, the HMRC CGT Return filing and payment deadline for disposal of UK residential property are now extremely tight. In view of this, in readiness for a future disposal, it would be as well for you to make a permanent record of your UK residential property’s purchase details. These records should include the purchase contract date, purchase cost and incidental expenses on the purchase. Also, where you have paid for enhancement expenditure on the property during your period of ownership then full details and the evidence thereof also needs to be recorded.
HaesCooper can help you with your UK fiscal requirements whether they are a small, medium or large. To learn more or to discuss your needs – contact us.
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