Capital gains tax on disposal of UK residential property – major change – tax due within 60 days of completion
This is a major change. Previously we usually had the luxury of at least 9 months to contemplate the payment of tax and calculate and report the gain via the annual Self-Assessment (SA) return due by 31 January after the end of the tax year. However, we only have a time window of 60 days to calculate, report and pay.
Who is affected? UK resident individuals or trustees disposing of UK residential property that result in a taxable gain. No returns are required where there is a loss or if no tax is due. Where property is held jointly, all owners are required to consider a return and payment of tax. (These rules are new to UK residents. Individuals who are not UK resident are not exempt from reporting and payment requirements. These individuals have already been subject to similar, but more far reaching, rules and these rules do not change from 6 April 2020.) Penalties for late returns and late payments are similar to those in connection with the annual SA return.
Starting the reporting process. The taxpayer has to notify HMRC of the disposal through their government gateway account. This notification is not the UK Land Return (UKLR) itself, it is the first stage of the process. The taxpayer subsequently receives a CGT reference number which can be given to the agent to enable the agent to submit the UKLR.
Calculating and paying the tax due. Broadly gains on assets, which are not subject to these rules are ignored in this calculation. Capital losses brought forward from earlier years or realised in current year on or prior to completion date can be included in the calculation. The UKLR cannot be amended for losses realised subsequently. (Broadly, UKLR may be amended but only in respect of events that have occurred before the UKLR was submitted). When the UKLR is submitted you receive a payment reference which is used to make the payment. In essence the tax is a payment on account of capital gains. The final CGT liability will be calculated when preparing the annual SA return.
Information gathering. Given the short time window it’s important to consider the computation early. Information required will include:-
a) Amount paid for original purchase together with associated costs e.g. stamp duty, legal fees. (Copy of the completion statement will be helpful).
b) Amounts paid for enhancements to the property and an outline of the work carried out.
c) Date of exchange for the original purchase of the property (and date of completion will be helpful) and dates of changes in owner occupation of the property throughout ownership to identify any main residence exemption.
d) Date of exchange (actual or anticipated) for the current sale of property.
e) Estimate of your taxable income for the year of disposable as the rate of Capital Gains Tax is determined by the assessable income in the year.
f) Sale proceeds for current sale and associated costs e.g. estate agents fees, legal fees.
g) Description of property sold particularly if there are outbuildings or land exceeds 1 acre.
h) Details of investment brokers report to account for any losses prior to reporting the current sale.
Planning. Consider realising losses on other assets on or before the completion date for the sale of the property. Also, looking at the paperwork, many of the points above can be and should be addressed on or before the property is put on the market. We should also be advised at the earliest opportunity; at the very latest we should be informed when an offer has been accepted and therefore it is assumed that a contract for sale will follow.
Some aspects of the legislation are not clear. As always, each situation is different and appropriate advice should be taken. Websters is here to help, although we would appreciate it if you would contact us as soon as possible, if you are in the process of selling UK residential property.