Important changes will come into effect next week as to how residential property disposals are reported and when Capital Gains Tax should be paid.
From 6 April 2020, where a UK resident individual (or trustee) disposes of a UK residential property, resulting in a Capital Gains Tax liability a new Capital Gains Tax return is required to be filed within 30 days of the date of completion. The Capital Gains Tax due must also be paid to HMRC within 30 days of completion. Capital Gains Tax is a tax on the profit when something (an ‘asset’) that’s increased in value is sold (or ‘disposed of’), in this case a UK Residential Property.
Whilst a return is not required if; the gain is realised on the disposal of the principal residence, is covered by the annual exempt amount (2020/21 £12,300) or is covered by capital losses brought forward from prior years, appropriate steps need to be taken to calculate the gain and determine whether a return is due.
For illustrative purposes only, Capital Gains Tax may need to be paid and reported when, for example, the following is sold or otherwise disposed of:
– a property that has not been used as the main home
– a holiday home
– a property which is let out
– a property that has been inherited and has not been used as the main home
Reports and payments will not have to be made when:
– a legally binding contract for the sale was made before 6 April 2020
– the full Private Residence Relief criteria is met
– the sale or disposal was made to a spouse or civil partner
– the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance (called the Annual Exempt Amount)
– the property was sold for a loss
– the property is outside the UK
What You Should Do
If you don’t tell HMRC about any Capital Gains Tax within 30 days of completion, you may be sent a penalty as well as having to pay interest on what you owe.
If you are contemplating selling a residential property that has not been your private residence throughout the full period of ownership please contact us as early as possible, so that we can assist you in calculating any capital gains tax that might be payable and completion of the necessary return to HMRC.
To discuss your own situation please contact Tom Penman tompenman@bakertillymm.co.uk or any of our Tax Team.