Tax Expert, Joanne Beale answers questions frequently asked by clients on how the new rules introduced from 6 April 2020 affect sales of second homes/properties.
The deadlines for filing and paying CGT arising on the disposal of an interest in a UK property have changed from 6 April 2020. These changes apply to both UK residents and non-UK residents. These changes do not apply if the residential property has been used solely as the owner’s private residence during the time it was owned.
I am a UK resident and I want to sell a residential property in the UK, what has changed?
If you are a UK resident and you sell or dispose of a UK residential property which is not the house where you normally live, then there may be CGT to pay. If there is CGT to pay, then you must tell HMRC about the gain and pay any CGT due within 30 calendar days from the date of completion.
What if I do not live in the UK?
If you are a non-UK resident you must continue to report sales or disposals of interests in UK property or land, regardless of whether there is a gain or not. You need to do that within 30 calendar days and from 6 April 2020 you can no longer defer payment via your Self-Assessment return. You must also pay the CGT within 30 days. You can find out more on GOV.UK.
What do you mean by a UK residential property?
The new requirement to tell HMRC and pay CGT applies when the gain is a residential property gain. In broad terms this type of gain will arise on the disposal of an interest in land that included a dwelling at any time e.g. the freehold of a property. The most common type of residential property gain that will arise would be the disposal of an investment property you might have e.g. a holiday home that you own in the UK, or it could be a house that you have inherited or one that you rent out.
Are all disposals of UK residential properties within these new rules?
If you are a UK resident, you do not need to do anything if the gains are not charged to CGT. This could be because they are fully eligible for Private Residence Relief; or because any gain (along with other gains from residential property in the tax year) are within your annual exempt amount; or because the property has been transferred to your spouse or civil partner.
Also, if a UK residential property was acquired to develop and re-sell then this would be a trading transaction and any profits would be chargeable to Income Tax. These profits should be returned in your Self-Assessment Return for the year. If it is not a trading transaction, then the CGT rules will apply.
When do I have to tell HMRC and pay the CGT?
You need to tell HMRC about the disposal and pay any tax due within 30 calendar days from the date of completion.
Does the 30-day period only apply to residential property disposals?
The 30-day period applies when you sell or dispose of a UK residential property. It also applies to direct and indirect disposals of non-residential property by non-UK residents. The sale or disposal of all other assets attracting a CGT liability have the normal Self-Assessment deadlines i.e. for the current tax year these should be reported on the 2020/21 Self Assessment Tax Return.
What happens if I do not tell HMRC about the Capital Gain on a UK residential property within 30 days and there is a CGT liability?
To help those selling properties familiarise themselves with the change in the rules and a new on-line process, HMRC is allowing a period of time to adjust and will not issue late filing penalties for CGT payment on account returns received late up to and including 31 July 2020.
For UK residents, this means transactions completed between 6 April and 30 June 2020 and reported up to 31 July 2020.
Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 calendar days.
Interest will accrue if the tax remains unpaid after 30 days.
How can Girlings help?
This legislation has a major impact on filing and payment obligations. Under the new rules the tax filing and payment liability needs to be actioned immediately on completion of the sale. Previously the seller was able to leave this liability until after the end of the tax year.
The problem for many will be that they may not know exactly what their CGT liability will be at the time of the sale. Therefore, when selling a second residential property they may need help from a tax advisor as soon as possible after the property is first put on the market in order to determine an appropriate estimate of the CGT liability and to submit the necessary returns to HMRC on time.
This is where our experienced team can help.
If you would like advice on reporting your CGT tax liability to the HMRC post 6 April 2020 please contact me, Joanne Beale. For advice on selling your property, please contact a member of our Residential Property team who will be happy to help.