A tighter time scale for paying capital gains tax on disposals of residential property

Under a new scheme, UK residents have to make a payment on account and submit a return to HM Revenue and Customs (HMRC) within 30 days of disposal of a residential property made from 6 April 2020. The payment will be credited against the taxpayer’s income and capital gains tax liability for that tax year.

For other types of assets (including commercial property), the existing rule continues and UK resident taxpayers must make a return and pay any capital gains tax (CGT) due by 31 January following the end of the tax year of disposal. Even with a disposal on 5 April 2020 taxpayers have the comparative luxury of ten months to calculate any gain arising and determine whether relief is available.

Anyone selling a holiday home or buy to let property will now need to consider, ideally well in advance of completion, what the tax position will be. Care will also be needed when selling the main residence. The reporting requirements will not apply where a gain is not chargeable to CGT by virtue of a relief, so those selling their only or main residence will generally not have to file a return. However, if the principal private residence relief is restricted, for example because of the size of the plot or because of periods of absence, the 30 day rule will apply. Almost all disposals of residential property will therefore warrant a review of the tax treatment.

The 30 day period runs from the date of disposal and when a property is sold this will be the date of completion but those who are making a gift of residential property should note that the period runs from the date of the gift.

Buying and selling property at the current time is certainly more challenging but it is still possible, which the blog ‘Can I still buy property despite the COVID-19 outbreak?‘ discusses.

Those who are able to complete the sale of a residential property at this time have been given a short extension for filing this new return. HMRC has announced that it 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 that transactions completed between 6 April 2020 and 30 June 2020 can be reported up to 31 July 2020 without a penalty. Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 calendar days.

Whilst this gives taxpayers more time to pull together the necessary information and complete the form, interest will still run on the tax due if it remains unpaid after 30 days. Therefore those disposing of property will want to deal with filing and paying the tax due as soon as possible. The interest rate on unpaid CGT is 2.6%, almost certainly significantly higher than the rate paid by the majority of interest earning accounts.

When putting a property up for sale, as well as perhaps giving it a lick of paint or fitting new carpets, considering the tax position on disposal will in future be an important element of the sale process. Vendors will need to pull together relevant information and paperwork so that they can meet this vastly contracted reporting and payment window.

If you would like to know more, please get in touch with your usual BDB Pitmans contact or Paul Gallagher or Carolyn O’Sullivan.