There has been a significant change to the tax reporting and payment requirements for disposals of UK residential properties from 6 April 2020.
Given the recent announcement by housing secretary, Robert Jenrick, that from Wednesday 13 May the housing marketing can resume, this change could now become more relevant.
We have set out below some common questions and answers for this change to help determine whether the new rules could apply to your disposal.
What has changed?
Disposals of any direct and indirect UK residential property or land on or after 6 April 2020, now need to be reported and tax paid within 30 days rather than under self-assessment.
Does this include my own home?
Reporting is only required by UK residents where there is a capital gains tax (CGT) liability. Disposals of your own home, where it has been your main residence throughout the ownership period should be covered by principal private residence relief and will therefore not need to be reported.
If there have been periods when you have not lived there, let out your home or used part of it as a business, however, reporting may be required.
Non-UK residents need to continue to report direct and indirect disposals of UK property regardless of whether there is a CGT liability.
When do I need to report?
If you have disposed of a UK residential property on or after 6 April 2020 (i.e. exchange of contracts) then you will need to report and pay the tax due within 30 days of completion of the sale.
Due to this short time frame it will be important to ensure that all information is readily available to be able to calculate the capital gain due, such as costs of acquisition, enhancement expenditure incurred, periods of ownership whilst living in the property etc. If you are looking to engage a professional adviser to help file the return, giving as much notice as possible will be advisable for them to help you to file on time.
HMRC has announced an initial ‘soft landing’ period with no late filing penalties issued for late returns received on or up to 31 July 2020. Interest will continue to accrue, however, on any late paid tax. After this date, the 30 day deadline will need to be met in order to avoid a late filing penalty.
How do I report?
In order to report you first will need to ensure that you have a government gateway account. If you do not have an account, please see below for details of how to set up.
Step-by-step guide
- Go to HMRC’s login page.
- Click on the ‘Sign in’ button under the heading ‘Sign in to HMRC Online Services’
- You will then be directed to a login page. Under the sign in button, click on ‘Create sign in details’.
- Enter your email address and click on ‘Continue’.
- A confirmation code will then be sent to you by email which should be used to verify your email address.
- Once confirmed you will then be issued with a User ID for your government gateway account. Please take a note of your User ID and keep it somewhere safe as it is not straightforward to retrieve at a later date.
Further details of how to retrieve your user credentials for an existing account can also be found here. If you have any questions or need any help setting up your account, please let us know.
Once you have a government gateway account you will then need to create a capital gains tax on UK property account. To do so you will be asked some basic questions about the property disposal such as the address, dates of exchange and completion and how the property was disposed of etc. The account can be set up here and you will need your gateway credentials as set up above.
Once this has been set up, you will be able to either file the return yourself or ask your agent or professional adviser to assist you with doing so. If you would like a professional adviser to assist you will need to provide them with the 15-digit account number which will be generated once the property account has been created along with the UK postcode (of your home address not the property disposed of) or country of residence as per their property account details.
Payment of the tax due?
Once the tax liability has been calculated and reported, this will also need to be paid within 30 days of the disposal. It will be treated as a payment on account of tax and should also take into account available capital losses up to the date of completion. An estimate of income for the year may be required in order to ascertain the correct tax rate to apply.
Where there is more than one disposal in the year, it is possible to take into account previous disposals in determining whether there is further tax due or, if tax has been overpaid, whether a refund can be obtained.
Do I still need to report on a self-assessment return?
Where it is a one-off disposal and you have no other income to report on a self-assessment return, you will no longer be required to register for self-assessment to report the gain.
Where you are already within self-assessment you will still need to report the gain and the tax paid during the year will be offset against this.