Changes to the reporting of Capital Gains on UK property sales

From the 6 April 2020, the way in which taxpayers are to disclose of gains on the disposal of UK residential properties has changed. Upon completion of the sale of a residential property, there will be a 30-day window to report the disposal and pay the associated capital gains tax due to HM Revenue & Customs, through the submission of a “payment on account return”.

The need to disclose a gain to HMRC is most likely to arise from the sale of a rental property. However, disclosures may also be required upon the sale of holiday homes; properties owned by the taxpayer which have not been used as a main residence or are no longer used as a main residence; and inherited properties not considered to be the owner's main residence. These rules may also apply to trustees who dispose of residential property held in trust.

A disclosure will only be required in cases where the gain made on a UK residential property disposal exceeds the capital gains annual exemption if this has not already been used. The current annual exemption for the 2020/21 tax year is £12,300. Within the disclosure, the taxpayer will need to estimate their income for the tax year. This is because capital gains above the annual exemption are chargeable to CGT at 18% when they fall within an individual's otherwise unused basic rate band, and 28% when they fall within the higher and additional tax rate bands.

The taxpayer should also take into consideration any capital losses suffered within the tax year, prior to the disposal of the residential property, as these losses can be deducted from the residential property gain when calculating the CGT due.

If a Self-Assessment tax return is completed by the taxpayer, the gain disclosed within the “payment on account return” must also be included within the tax return. Therefore, any CGT paid within the 30-day window will be deducted from the tax liability determined upon completion of the tax return once final income details for the year are known. In addition, any capital losses suffered after the disposal of the property will be taken into consideration at this time.

If provisional figures were used when disclosing the gain, these can be amended within the Self-Assessment tax return. If the taxpayer does not complete a tax return, they will have a year to amend the figures provided to HMRC in the original disclosure.

If the taxpayer fails to inform HMRC of a disposal that meets the reporting requirements within 30 days of completion, regardless of whether they are within the Self-Assessment regime or not, penalties will be imposed along with interest charges on the gain.

In order to disclose the gain, the taxpayer must set up a Government Gateway account. Within the Government Gateway account, you are then required to set up a 'Capital Gains Tax on UK property account' and from here you can either complete the return or authorise your agent to complete the return on your behalf.

If you considering selling a UK residential property, please do not hesitate to contact magnus.leonard@renniewelch.co.uk or mairi.drummond@renniewelch.co.uk if you would like to discuss the tax implications of the sale or the reporting requirements further.