Since 6 April 2020, UK tax residents are required to report and pay Capital Gains Tax (CGT) to HM Revenue and Customs (HMRC) within 30 days of the disposal of UK residential property. For these purposes, a UK tax resident person extends to individuals (where property is jointly or wholly owned), trustees, personal representatives and individual partners in partnerships/LLPs.
Reporting for UK tax residents is only required where CGT is due on the sale or gift of a UK residential property. Some examples where reporting to HMRC is required for UK tax residents are as follows:
Where the UK residential property is the taxpayer’s primary principal residence for the entire ownership period, usually no reporting is required.
Similar rules have applied for non-UK residents since 2015, however, they are wider in scope (and can include indirect disposals as well as non-residential property) and the reporting of a UK property disposal is required even where no CGT is due. If you require further advice in this regard, please get in touch.
Reporting to HMRC
A new digital service was developed by HMRC to support the reporting requirement. The digital service is completely standalone and does not interact with the self-assessment system. The individual must set-up a CGT UK property account regardless of whether an agent is appointed to report the gain.
Practically, in order to set-up a CGT UK property account, government gateway credentials are required to login (new credentials are not required if the taxpayer already has these). After logging in to the government gateway the system will issue a reference number for the CGT UK property account. The reference number is 15-digits long in the format XYCGTxxxxxxxxxx. Once an account is set up the taxpayer can choose whether to report the property disposal themselves or to authorise an agent. An existing agent authority is not recognised for the service.
Calculating the CGT
A tax computation is prepared as part of the report to HMRC to calculate the estimated CGT due. To calculate the gain, usually the following costs can be deducted from the final sales proceeds:
Based on the above, where there has been a long ownership period, gathering this information for inclusion in the CGT computation could prove tight before the 30 day deadline passes. There may also be reliefs available to reduce the gain depending on the facts. Therefore, it pays to plan ahead before completing on a sale.
Taxpayers can take into account their annual exemption (£12,300 for individuals in 2021-22) and any capital losses in the same tax year (provided they are crystallised before the completion date) or brought forward from earlier years. With this in mind, there may be an opportunity to capital losses to reduce the impact on cash flow.
A computation of the final tax position is normally calculated when preparing the taxpayer’s self-assessment tax return. This takes into account any factors that were not included in the original tax estimate. The CGT paid is treated as a “payment on account” towards the final self-assessment tax liability.
Taxpayers have 30 days from the date of completion to report the property disposal and pay any CGT owed to HMRC. Late filing penalties may be charged, together with interest on any unpaid tax if the deadline is missed.
How can we help?
If you are thinking about selling or gifting a property, getting in touch with us before acting could be extremely valuable, as we can assist with identifying the key facts, if any reliefs are available and minimising the potential impact a CGT payment has on your cash flow, especially with the tight 30 day deadline. We work collaboratively with other advisers so, where necessary, we can provide assistance to your solicitor, estate agent or investment adviser.
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This blog was co-written by Michael Jamieson and Personal Tax Assistant, Charlotte Pleass.