30 Day Deadline for Reporting and Paying Capital Gains Tax on the Sale of UK Residential Property to HMRC

UK residents disposing of UK property

New rules for reporting and paying any Capital Gains Tax (CGT) on the disposal of an interest in UK residential property were introduced from 6 April 2020 for UK residents.  This brought the reporting requirements into line with those already in place for non-UK residents.

It is not just the sale of a property that must be reported.  If a property is gifted to someone else (other than to a spouse or civil partner) or into a trust or company, the transaction must also be reported to HMRC within the 30-day time limit.

Setting up the necessary reporting account

• To be able to complete the online form and report the gain to HMRC the person selling or gifting the property has to set up a Government Gateway account if one is not already in place. Unfortunately, this cannot be done by a tax agent, such as ourselves.
• Joint owners of a property will each need to set up a separate Gateway account.
• Once the Government Gateway account is set up the Capital Gains Tax on UK Property account can be created. This CGT account must be in place in time to report any disposals within the 30-day time limit.
• At this point an authority can be put in place for the tax agent to submit the CGT report on behalf of the taxpayer.
• Note that if the person selling or gifting the property does not have any photographic ID, they will struggle to set up the necessary Government Gateway account. They will need to contact HMRC by phone to request a paper version of the reporting form.

Calculating the Capital Gains Tax liability

It is important to calculate the CGT liability as accurately as possible.

As CGT rates are currently linked to the level of income of the taxpayer, calculating the tax can often be difficult.  This can be the case when the individual has an uncertain level of income e.g. if they are self-employed, partners in a partnership, run a buy-to-let business or receive fluctuating investment income.

Claims for main residence relief are not always easy, particularly if an individual has not lived in the property throughout their entire period of ownership.

CGT planning might also be possible to reduce any tax payable on a property disposal.  Potential savings can sometimes be significant if the correct advice is obtained and planning action is implemented.

Does the sale of a UK Residential Property need to be reported on a Tax Return as well?

Residential property disposals reported using the new system must still be included on a Self-Assessment Tax Return if one is normally completed.

However, anyone who does not already complete a tax return and has no other reason to join the Self-Assessment regime will not need to submit a tax return for the sole purpose of reporting a residential property disposal.

There are certain situations where a CGT on property return is not required:

1. The property was the taxpayer’s main residence throughout the entire period of ownership and they are eligible to claim Principal Private Residence relief which exempts any gain from tax.
2. The disposal is to a spouse or civil partner.
3. The gain plus any other gains during the year except on residential properties are within the tax-free capital gains tax allowance.
4. The property was sold at a loss.
5. The property is not in the UK.
6. Where a binding contract for sale was made before 6 April 2020.

However please be aware that in some of these situations the disposal will still need to be included on a Self-Assessment tax return and it is therefore essential to seek professional advice.

Non-UK residents disposing of UK property

Non-UK residents must continue to report all disposals within 30 days of the completion date, even if they have no tax to pay or have made a loss.  They have been able to use the new online service from 6 April 2020.

Non-residents previously had the option to defer CGT until the normal payment date of 31 January following the end of the tax year.  This option is no longer available for disposals after 6 April 2020 and any tax owed must be paid within the 30-day time limit.

Penalties and Interest

The penalties for not reporting disposals within the 30-day deadline are as follows:

• Up to 6 months late, a penalty of £100.
• Between 6 and 12 months late, a further penalty of £300 or 5% of any tax due, whichever is greater.
• More than 12 months late, a further penalty of £300 or 5% of any tax due, whichever is greater.

Interest will also be charged on late payment of the tax liability.

It is evident that a large number of individuals are completely unaware of the new CGT reporting requirements and are receiving unwelcome penalties from HMRC for missing the 30-day deadline.  We have a dedicated team at Johnston Smillie who can guide our clients through the process seamlessly to ensure that the CGT return is submitted on time.  Please do not hesitate to contact us if we can be of assistance.