Capital Gains Tax on the Sale of Residential Property
If you sell residential property in the UK, with a few exceptions, you must file a ‘UK Land Return’ within 30 days of completion and pay the Capital Gains Tax (CGT) due.
We are finding that clients are not being advised of this by their solicitors, so if you are putting up a property for sale please let us know.
Disposals from 6 April 2020 onwards (UK resident individuals and trusts)
From 6 April 2020, a UK resident individual or trust disposing of UK residential property will be required to file a ‘UK Land Return’ within 30 days of the completion date of the aforementioned disposal. Where properties are held jointly or in partnership, each owner is required to submit a UK Land Return (and pay the tax) in respect of their share of the disposal. Penalties will apply if the return is filed late.
The vendor will also be required to pay an estimate of the CGT 30 days from the completion date. This will be treated as a ‘payment on account’ against their total income tax and CGT liability for that year when the annual self-assessment tax return is submitted.
The individual or trust will, therefore, be required to estimate how much tax is payable. This will depend on several factors which could result in a refund/additional liability being due when the annual self-assessment return is submitted. If additional tax is due when the annual return is filed, then interest will be payable at the standard rates set by HMRC.
Some common examples of where a UK land return will not be required are:
- Where the gain is covered by principal private residence relief (‘PPR’) throughout the duration of the taxpayer’s ownership
- If a loss arises on the sale of the property
- The gain is sheltered by capital losses crystallised before the sale takes place
- The gain is small enough to be covered by the individual’s annual exemption for the year of disposal.
In practice, a UK land return will be required for let properties, second/holiday homes and homes with extensive grounds and gardens not fully covered by PPR, in so far as such disposals crystallise a CGT liability.
Note: The return and payment on account will not be required where the property disposed of is not residential property or where the property is situated outside the UK.
The above list is not exhaustive and, therefore, if you have any doubt over whether a return will need to be submitted please contact me to discuss.
From a practical perspective, you will need to rapidly determine whether (or to what extent) your gain is sheltered through PPR relief and, if it is not fully sheltered, what the gain will be and to what extent it will be sheltered by capital losses or your annual exemption.
Please be aware that in order to submit a UK Land Return, you must have access to a personal Government Gateway. I strongly recommend ensuring that you have access to a Gateway as soon as you market the property. Should you require our assistance in setting up a Gateway please do not hesitate to contact our offices.
The application of this legislation will be a ‘game-changer’ in the sense that the tax filing and payment obligations need to be considered immediately on completion of the sale rather than left until after the end of the tax year.
It is common for individuals not to know precisely what their CGT liability will be at the time of the sale and indeed, some of the relevant information may not be known until after the end of the tax year. For example, this could be the case where the tax liability depends on other disposals or other income in the same tax year. Therefore, please contact me much sooner (ideally when the property is first put on the market) when making residential property disposals so that we can submit the returns on time and determine an appropriate estimate of the CGT liability.
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