From 6 April 2020, UK residents disposing of UK residential property will have new capital gains tax (‘CGT’) reporting and payment obligations. The introduction of a 30-day reporting and payment deadline is a significant change to the administration of CGT.
The tight deadline will mean that many clients will be dependent on their solicitors to keep them within the law. Even clients who have accountants (and would normally rely on them to deal with their tax affairs in good time) might not tell them about capital gains until after the end of the tax year. By that time they would have incurred interest and penalties for missing the 30-day deadline.
The changes do not apply where a gain is not chargeable to CGT, such as where a gain is covered by private residence relief. They will therefore mainly affect people with second homes or rental properties, but they will also catch people who sell their home after having rented it out for a time (whether or not they moved back in before selling).
Exceptions – applicable more often than not
For most residential property disposals, no return or payment will be required. The new rules apply only when a person has a CGT liability on the disposal of residential property in the UK. Therefore no return or payment is required where a loss is incurred, or where any gain is covered by:
Summary of the rules
The general rule will be that within 30 days of the completion of a disposal of UK residential property by a UK-resident individual, trustee or personal representative, on or after 6 April 2020, a return (‘residential property return’) and a payment on account must be made in respect of the disposal.
The payment on account required is an estimate of the CGT, after deducting the annual exempt amount (currently £12,000) and any losses, but ignoring any gains already made in the year on other types of asset.
The Government accepts that it may be impossible to provide exact figures, so estimates and assumptions are allowed where necessary. If an estimate is reasonable but it turns out that not enough tax has been paid, no interest will be charged when the correct amount is calculated and paid.
Persons who already file a tax return will also have to include their gains in that return, which will then supersede the residential property return. Other persons will not, and their residential property gains won’t bring them in to the income tax self-assessment system.
UK non-residents already have similar obligations, for disposals of residential or non-residential property.