Blogs/Vlogs

Real-time reporting of Capital Gains

15 January 2020

Anyone in employment will be well aware of the concept of real-time reporting and taxation in the UK; with the comfort for most being that what we see in our monthly payslip is, more or less, what we have to spend and we don’t have to get involved with tax returns.

To this end, HMRC are introducing real-time reporting for Capital Gains Tax (CGT) from 6 April 2020 for the disposal of residential property by UK tax resident individuals.

Exemptions

Exemptions exist for the following:

  • Commercial property owned by UK tax resident individuals
  • Your Principal Private Residence “PPR” (i.e. your main home)
  • Property qualifying for Letting Relief (i.e. property which has been your PPR and has subsequently been let)
  • Property owned by a company or other corporate entity.

But with the Budget scheduled for 11 March 2020, there is still time for the rules to be refined prior to the start date of 6 April. Read our Budget 2020 Predictions blog here.

Furthermore, whilst the above transactions may not be caught by the new reporting and tax payment regime, they are still likely to have their own tax implications, so advice is recommended nonetheless.

What you need to know

So, if you have a second home or buy-to-let property (in the UK or overseas), even if you already do your self-assessment return annually, you will need to be aware of the changes.

Historically, the deadline to tell HMRC about any gains has been by 31 December following the end of the tax year of disposal, or via your self-assessment return (due by 31 January). However, for any disposal completing after the start of the new tax year, you will now need to report AND pay any tax due within 30 days of completion.

Moreover, the real-time report must be made using an online HMRC portal, using estimates as necessary, with a further report still needing to be made on your annual self-assessment return.

Real-time reporting for residential property gains was introduced from 6 April 2015 for non-UK residents owning UK property, but the extension of the rules will now affect any individual, trustee or personal representative selling an interest in a UK residential property.

How to calculate a gain

To recap on the broad principles for calculating a gain, you will need to compare sales proceeds with the original cost of the property, with the profit being exposed to tax at 18% or 28% depending on your other income levels in the year of disposal.

Some good news is that each UK individual does have an Annual CGT Exemption available (set at £12,000 from 6 April 2020) and can also use historic capital losses to reduce a gain further so it is important to do the sums!

Other factors to consider

Finally, if a loss arises, whilst real-time reporting is not necessary it is still helpful to tell the taxman as the loss can be useful in future as any failure to tell HMRC about a loss within 4 years would mean it is extinguished and no longer available for offset.

And don’t forget, transfers between relatives or family still constitute a disposal for tax purposes. If you have any doubts, please check the advice readily available on HMRC’s website here, or try the calculator here.

Oh, and remember that the UK tax system operates on a self-assessment basis, so the obligation will be on the individual to make the necessary reporting. Please don’t assume that your solicitor will do this for you, or even be aware of the accelerated time limits.

If you have any queries or would like to discuss this topic further, please contact your local UHY adviser who will be happy to help.

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