Reporting Rules Regarding the Disposal of Residential Property

From 6 April this year it has become a requirement to report the sale of residential property to HMRC and pay any Capital Gains Tax within 30 days of the sale. This rule does not apply to your principal private residence but will most likely apply to any second residential property that you may own. The rules have not been widely publicised by HMRC so it is quite possible that you have not heard about them and this is why we thought that we should bring the matter to your attention—just in case you own a second property that you are thinking about selling.

Essentially:

If you sell a UK residential property and a chargeable gain arises you’ll need to report the gain to HMRC on a CGT return and pay the tax within 30 days of completion. HMRC will issue penalties and charge interest if you needed to report a gain/pay tax and failed to do so.

With such a tight deadline, you’ll need to make preparations in advance to ensure compliance with the new 30-day deadline. Unless you are classed under certain categories for whom the use of digital technology cannot reasonably be expected, you are expected to make your CGT return and payment online via HMRC’s government gateway. If you don’t have a government gateway account, you’ll need to apply for one – a process which can take up to 10 working days, so this will need to be factored in. You’ll also need certain details to hand to fill in the required paperwork – these should also be gathered in advance to prevent delays and any potential penalties. The information you’ll need includes:

• The date the property was acquired
• Costs of purchase and disposal e.g. purchase price, legal, surveying or estate agency fees (these can normally be found on the completion statement from your solicitor)
• Costs of eligible home improvements
• Earnings in the applicable tax year.

To calculate your taxable gain you will need to deduct the allowable costs (be careful, not all costs are allowable) from the sale proceeds. Finally, if you haven’t already used it, you can deduct your annual Capital Gains Tax allowance of £12,300 (2020/21).

It is this “taxable gain” that will be added to your estimated income in order to calculate the tax payable. You’ll pay Capital Gains Tax of 18%, 28% or a combination of the two on the remainder, depending on your tax band.

If you complete a tax return you will also need to include details of the disposal on the return as normal, paying any tax adjustment through self-assessment as normal.

Due to coronavirus (COVID-19), you will not get a late filing penalty for any transactions completed on or after 6 April 2020 to 1 July 2020 and reported up to 31 July 2020.

Transactions completed from 1 July 2020 will receive a late filing penalty if they are not reported within 30 calendar days.

Interest will be charged if the tax remains unpaid after 30 days for all transactions from 6 April 2020.

Capital gains tax relating to the disposal of property is complicated and we advise you to contact us if you need help.