1st October 2019
Landlords are still adjusting to the restrictions on tax relief on their properties but now face a new challenge, which has not been well-publicised by HM Revenue & Customs (HMRC).
From 6th April 2020, there will be a fundamental change to the reporting and administration of Capital Gains Tax (CGT) on sales or other disposals of UK residential properties.
What is changing?
Currently, CGT is due between 10 and 22 months after the disposal, depending on how early in the tax year it falls. However, after 6th April 2020, any chargeable gain on disposal of UK residential property must be reported by submitting a “residential property return” within 30 days of completion, with the tax payable by the same date. If the property is jointly owned, each owner must submit a return.
If there is no eventual gain after exemptions (such as Principle Private Residence relief) and carried forwarded losses, the taxpayer won’t have to complete a property disposal return. However, some taxpayers may not be aware of what is available to them and leave a short window to liaise with their accountant to establish if anything is due and make the relevant filing.
These changes mirror the system in place for certain non-resident landlords since 2015. The transaction had to be reported under the non-resident capital gains tax (NRCGT) rules within 30 days, regardless of if there was any tax to pay. Taxpayers did have the option to defer the tax payment if they were already Self Assessment taxpayers.
How much will I pay?
This leads to a guessing game, as the rate of CGT to pay (18% or 28%) is based on your other income. So the payment will be a “payment on account”, with the actual figure then calculated on the following tax return once all other income has been factored in. Taxpayers then may need to make a balancing payment or claim a refund if they have overpaid.
What happens if I don’t file?
A similar penalty regime to Self Assessment will be implemented. An initial penalty of £100 will be issued if the return is submitted more than 30 days after completion. Once it is over three months late, daily penalties of £10 per day will accrue over the next three months or until the return is submitted up to an additional £900.
What should I do next?
The changes will primarily affect those selling second homes or rental properties. Oddly, the date used to establish which tax period this falls into is based on the date contracts are exchanged, while the 30-day return and payment window runs from the completion date.
Taxpayers selling a residential property after April 2020 will need to be extremely organised to stay on top of the additional admin. HMRC’s drive to accelerate tax revenue will see many people fall foul of penalties and surcharges.
If you are thinking of disposing of a property, contact our Personal Tax team at 0800 917 9100.