02 April 2020
This is not another COVID-19 update but, in the current situation, it may be easily overlooked that although representations have been made to the Government to delay its introduction given the current circumstances, we are about to enter a seismic shift in the UK tax system on the sale of residential properties, which may catch out the unwary.
Since the introduction of Self-Assessment over 20 years ago, Capital Gains Tax (CGT) has been payable by 31 January in the tax year following the year of disposal, potentially almost two years after a sale.
From 6 April 2020, where CGT is due on the disposal of a UK residential property by an individual who is a UK resident, a new standalone online return will need to be filed with HMRC, together with payment on account of CGT, within 30 days of the date of completion of the transaction. Interest and penalties will be charged if the deadline is missed.
From our experience of the existing ‘Non-Resident Capital Gains Tax’ return, many solicitors and conveyancers will not be prepared, or offer, to deal with the CGT return or may not have the capability to navigate the complex CGT rules and exemptions within the short timescale available. It is therefore vital that you let us know immediately if you sell any UK residential property and no other arrangements have been made to file a return, as there is a very short timeframe to report any relevant disposal to HMRC.
If tax is payable as a result of the sale, the requirement for almost immediate payment will have an impact on cash flow and any associated transaction or purchase, which may not have been expected.
The changes will mainly affect those disposing of buy-to-let properties, furnished holiday lets or second homes, but also main homes which have not been occupied throughout the period of ownership. Where the disposal gives rise to a capital loss or a gain is fully covered by a relief (such as private residence relief), there will be no requirement to file a UK land return. A return will also not be required where the gain is covered by the annual exemption, or a brought forward capital loss. Disposals of foreign property are also not caught by the new rules. Where there is no requirement to file a return, there is similarly no requirement to make a payment on account of CGT.
For the avoidance of any doubt, HMRC have confirmed to us that the new reporting and payment regime applies only to taxable gains accruing on disposals of UK residential property made on or after 6 April 2020 (in the tax year 2020/21). This means that where contracts are exchanged under an unconditional contract in the tax year 2019/20 (before 6 April 2020), but completion takes place on or after 6 April 2020, the 30 days filing requirement does not apply. At present that is unlikely due to business closures, but not impossible.
Please get in touch with me or your local UHY adviser for further advice.
