From 6th April 2020 HMRC have introduced important changes to the way in which the disposal of UK residential properties must be reported and the payment of Capital Gains Tax.
These changes apply to disposals made from 6th April 2020 for UK residents. Non-residents have already had a reporting obligation within the 30 days since 6th April 2015 but there has been a change in that in all cases, the tax must be paid within 30 days rather than having the option to pay on the 31st January after the end of the tax year.
A disposal of a property will be liable to Capital Gains Tax if the property is sold, gifted or transferred to someone else, other than your spouse.
This provision does not change the way in which Capital Gains Tax is calculated. However, there are separate provisions which have withdrawn Lettings Relief in the majority of circumstances and reduced the final period of Principal Private Residence relief from 18 months to 9 months. Any other reliefs and allowances will still be available. The rules apply to a property that is not the main residence throughout the period and will include buy-to-let and inherited properties.
There is no change to the way that capital gains on other assets (including commercial properties) are reported.
Under previous rules, UK residents reported any gains made on UK residential properties that are disposed of before 6th April 2020 on their Self Assessment tax return and pay any tax due on 31st January with their normal Self Assessment tax. Non-residents have had to report the gains within 30 days of the completion of the sale since gains on non-residents became chargeable in 2015 (for residential properties) and 2019 (for other properties).
From 6th April 2020, UK residents will be required to report any Capital Gains Tax liability on the disposal of a residential property only and pay any Capital Gains Tax due, within 30 days of the completion date following the disposal. We advise that you calculate the likely Capital Gains Tax liability before selling a property.
The report and payment must be made using HMRC’s new digital UK Property Service.
If you complete a Self Assessment Income Tax Return, the sale will also need to be declared on that return and credit will be given for the tax already paid.
For a ‘one off’ disposal there will be no need to register for Self Assessment and submit a Self Assessment tax return. The report and payment of Capital Gains Tax only needs to be made through the new service provided that you are not already required to complete a Self Assessment tax return.
If there is no tax to pay i.e. a loss is made or the gain is covered by annual exemption allowance or other relief, then no report will be required.
Non-residents who dispose of a property already report disposals of all properties (including commercial properties) to HMRC within 30 days of completion. This has been the case since 6th April 2015 for residential properties and 6th April 2019 for commercial properties. However, from 6th April 2020 they will no longer be able to defer payment and will need to pay any Capital Gains Tax liability within 30 days.
For disposals after 6th April 2020, reporting and payment must be made using the new digital service which will replace the current online return for Non-resident Capital Gains Tax on UK property. For any gains made before 6th April 2020, the old service should be used.
To use the service individuals will need to register for the new digital service if they intend to make the report themselves and not use an agent. Individuals wishing to use an agent to make the report will need to set up a Capital Gains Tax account with HMRC and provide their agents with a CGT reference.
The date that contracts are exchanged on the sale of a property is the date of disposal. It is that date that will determine the tax year in which the gain occurs. The completion date is normally the date that keys are handed over to the new owner and will determine the start of the 30 day period for reporting and paying Capital Gains Tax.
If the report is not made or tax paid within the 30 day period then late filing penalties and interest will be applied in a similar way to that of self assessment i.e. £100 automatic late filing penalty with further penalties applied after 6 months and 12 months for non-filing and interest on late payment of tax.
If actual figures are not available when making the report to HMRC then estimated figures can be used rather than delaying making the report after 30 days. The individual has 12 months to go back and amend the return when actual figures are available. Alternatively, they may choose to amend the figures on their self assessment return, if they are required to submit one.
If multiple disposals are made within the same tax year, then a separate return must be made for each property unless exchange of contracts and completion occur on the same date. A loss made on a previous disposal can be included within the calculation for Capital Gains Tax so long as the loss was reported to HMRC.
If a gain has been made on an earlier disposal and CGT paid to HRMC within 30 days, then a repayment can be claimed through the new service if a loss is made on a subsequent disposal or if expected income for the tax year is considerably lower and the higher rate of tax has been used in the original calculation.
Q: How do individual customers access the new CGT service?
A: Individuals will register and subscribe to the service via Gov.UK.
Q: Will you, as my Agents, be able to access the new CGT service on my behalf?
A: Yes, an Agent must be registered with the existing HMRC Agent Service and create an Agent-Client relationship. The client can electronically authorise the Agent to act on their behalf.
Q: How, and by when, do I pay the CGT charge?
A: You will need to report the disposal and pay any CGT due within 30 days of the completion of the disposal. Reporting and payment will be made electronically. Customers will report using the new online CGT Payment on Property Disposal system. Further information will be available on gov.uk shortly. For digitally excluded customers offline reporting will be possible. Further information on offline reporting will also follow in due course.
Q: Will I incur a late filing penalty if I file my CGT Payment on Property Disposal return late?
A: Yes, the penalties for CGT Payment on Property Disposal returns are calculated in the same way as Self Assessment, apart from daily penalties (which aren't charged for CGT Payment on Property Disposal returns). The filing deadline for a CGT Payment on Property Disposal return is within 30 days of the completion of the sale. If a return is filed more than 30 days following the completion of the sale, it is late and attracts a late filing penalty of £100. Returns filed more than 6 months after completion of the sale will also attract a late filing penalty of £300 or 5% of the tax outstanding, whichever is higher. Returns filed more than 12 months after the completion of the sale will also attract a late filing penalty of £300 or 5% of the tax outstanding, whichever is higher.
Q: If the gain is calculated as being below the individual personal allowance, do I still have an obligation to report to HMRC?
A: If the gain is below the annual exempt amount, or is covered by Private Residence Relief, there is no obligation to report the disposal.
Q: Will the new changes affect non-residents?
A: Yes, from 06/04/2020 non-residents will no longer be able to defer any payment of NRCGT and any CGT due must be paid within 30 days of the completion of the sale. For disposals before 06/04/2020 non-residents will continue to file via the current process.
Q: If someone wasn't non-resident at the time of sale but became non-resident during the tax year do these rules apply?
A: Non-residents must also report the disposal of UK residential property interests within 30 days of the date of completion of the disposal and pay any capital gains tax that is due.
Q: If an individual is not in Self Assessment and sells a property, how long does it take to register for the new Digital service
A: Registration can be completed in minutes.
Q: Do all clients need a UTR in order to submit a CGT on UK Property Return?
A: No, A UTR is one of several identifiers that can be used to report and pay CGT.
Q: Do the new rules apply to gifts?
A: Yes, the new rules apply to gifts of UK residential property.
Q: I thought the law would also cover the disposal of non-UK residential property by a UK resident?
A: No, the new rules only cover the disposal of UK residential property interests. The disposal of a non-UK property that gives rise to a capital gain for the individual, will need to be declared via Self Assessment.
Q: Will I be given a reference to make the payment under?
A: Yes, customers will be given a payment reference number once they have submitted their CGT Return.
Q: Will CGT Liability be paid in the same way as Self Assessment through a UTR?
A: Customers will be required to pay using a payment reference number once they have submitted their CGT Return. The CGT reference is separate to the UTR.
Q: How do you obtain a CGT reference?
A: By registering for a CGT account via Gov.UK.
Q: What happens if someone doesn’t have an online bank account?
A: There are several ways for customers to make payment, including through non electronic means.
Q: Will CGT paid on account show on my Self Assessment account?
A: The 2020/21 Self-Assessment online will be updated to include reference to the CGT payment on account.
Q: How does this affect disposals of a whole property where part of it has been let i.e. annex or flat within the main residence?
A: These new rules don't change how capital gains tax is calculated. The disposal will need to be reported within 30 days of the completion of the conveyance.
Q: Can you partially complete a declaration and return to it a day or two later with the final information?
A: Yes, save and retrieve functionality will be available to allow customers to return to a part completed Return that has not yet been submitted to HMRC.
Q: What should I do if I do not have the final figures ready to make the report within the 30 day deadline?
A: Do not delay in making your report. You can use estimated figures to ensure you report within 30 days and then amend the figures when you have final figures available. The amendment can either be done via the new digital service or on your Self Assessment form, if you are required to submit one.
Q: Can you use the annual exempt amount against a residential property gain even if you know you will make other disposals to be reported on the tax return during the tax year?
A: The calculation of the amount of tax notionally chargeable ignores disposals which have a later completion date. In this case the annual exempt amount would be used against the residential property gain - ignoring the later disposal.
Q: Are the rules to do with disposal of land as well as residential property?
A: For UK residents these rules are for direct disposals of UK land on which a residential property gain accrues. If the disposal is of land that is not classed as residential property, then these rules do not apply and any gain will need to be declared via Self Assessment. Non-residents will need to report all disposals of land and buildings under the rules introduced in April 2019.
Q: How do Trusts access the new CGT service?
A: A Trustee will register and subscribe to the service using the Trust UTR no. If the Trust is not yet registered, the Trustee must register the Trust with the TRS (Trust Registration Service) and use a Temporary Reference Number which will be provided on registration.
Q: Do these new rules apply to periods of administration in deceased estates
A: Yes, the new rules apply to personal representatives.
© Thandi Nicholls Ltd 2020 All Rights Reserved - The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.
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