Significant changes are happening to reporting rules for UK resident individuals who sell residential property, starting from 6 April 2020.
Newly, taxpayers will have just 30 days to notify HMRC of the sale and pay any capital gains tax owed. Penalties will be due where capital gains tax is paid late, and interest will begin to accrue on the tax debt.
Under the current rules, taxpayers are required to notify HMRC and pay any tax due by January 31 of the year following the end of the relevant tax year in which the transaction was completed.
Taxpayers will need to make a capital gains tax report and make a payment within 30 days when, for example, they sell or otherwise disposes of:
- a property that they've not used as a main home;
- a holiday home;
- a property that they let out for people to live in;
- a property inherited that has not been used as a main home.
Taxpayers won't need to make a report and payment under the new rules when:
- a legally binding contract for the sale was made before 6 April 2020;
- the taxpayer meets the criteria for Private Residence Relief;
- the sale was made to a spouse or civil partner;
- the gains (including any other chargeable residential property gains in the same tax year) are within your tax-free allowance (called the Annual
- the property was sold for a loss; or
- the property is outside the UK.
For 2019/20, the Capital Gains Tax-free allowance is £12,000, or £6,000 for trusts.
HMRC has confirmed it will soon launch a new online service through which CGT liability will be reported and settled.
Different rules apply for non-resident individual taxpayers. If you are a non-resident taxpayer, you should report sales or disposals of interest in UK property or land regardless of whether the sale gives rise to UK capital gains tax liability, within 30 days of the disposal.
The change from 6 April 2020, will mean UK resident and non-resident taxpayers may no longer defer payment of capital gains tax via their self assessment return. This includes disposals of residential properties, non-residential properties, and indirect disposals.
From 6 April 2020, non-UK resident individuals will also be able to use the new online service.
The same rules apply for property held in trusts. Existing trusts will be able to use their Unique Taxpayer Reference number to access the service.
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The changes have been described by the UK tax profession as a "seismic change" to how tax is paid. The Chartered Institute of Taxation highlighted that:
"The current system means that, depending on timing of the sale, CGT is due anything from 10 months to 22 months after the sale or disposal. The new 30-day deadline means people have less time to calculate the CGT, report the gain and pay the tax."
John Bunker, Chair of CIOT's Private Client UK Committee, said:
"It is essential that people plan ahead to meet the new deadline or risk penalties. Property owners should contact their tax agent or adviser if they have one, to let them know that a sale is underway now rather than wait for the annual Self Assessment tax return process."
"This is a seismic change for property owners with taxable gains on their residential properties. Rather than thinking about an annual compliance process, property owners need to have their records up to date in advance of the sale so that the 30-day deadline can be met and penalty charges avoided. Make sure that full property details are all readily to hand including the date when the property was acquired, the acquisition cost, and details of any improvements made over the period of ownership. In some cases, professional valuations may be needed."
CIOT said calculating the CGT due to HMRC will require the property owner to make a reasonable estimate of the tax payable. This is because the rate of CGT will depend on the taxpayer's income in the whole tax year. The taxpayer must estimate his/her income for the year so that the correct CGT rate of 18% or 28% is applied, CIOT said.
"This may not be a problem where income is steady and predictable but more difficult if income levels are uneven or more than one property is sold in a year, so affecting the overall CGT due."
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