Tom Moore, a Chartered Tax Advisor, who specialises in private client tax, recently joined Peterborough law firm Hegarty Solicitors to expand the range of services offered to clients. Tom advises clients on a range of tax planning matters, such as Capital Gains Tax (CGT) advice and reporting on sales of residential and commercial properties. Here he discusses when Capital Gains Tax should be reported on UK residential property disposals for UK residents.
What is Capital Gains Tax?
Capital gains tax is a form of taxation on the gains made on the sale or ‘disposal’ of assets, for example from the sale of a business or shares, inherited properties or second homes.
CGT needs to be self-reported as it is not automatically deducted by HM Revenue and Customs (HMRC). If you are selling a UK residential property it is important to be aware of what needs to be reported and the deadlines to do so, because if you fail to report and pay CGT or miss the deadline you will have to pay a penalty.
Capital Gains Tax rules when selling a UK residential property
From 6 April 2020, it has been a mandatory requirement for UK residents (individuals, trustees and personal representatives) that dispose of an interest in UK residential property that results in a Capital Gains Tax liability to report and pay this to HMRC.
The deadline for this depends on the date of completion of the sale. You must do this within:
- 60 days of selling the property if the completion date was on or after 27 October 2021
- 30 days of selling the property if the completion date was between 6 April 2020 and 26 October 2021
If these deadlines are not met, then HMRC will charge late filing penalties and late payment interest.
What is deemed to be a disposal?
A disposal does not just have to be a sale, it could also be a gift, grant of lease out of a freehold, transfers via a declaration of trust or other means. It is worth noting that usually transferring a property to a family member is deemed to be a disposal at the market value of the property, unless it is to a spouse/civil partner.
What types of property will I have to pay CGT on?
If the property you disposed of was and always had been your main or only residence, then these new rules shouldn’t apply. If in any doubt it is worth checking with a professional adviser.
You may have to pay CGT on:
- Buy to let residential property
- Holiday homes or second homes
- Residential properties you partly lived in as your main or only residence or never lived in as your main or only residence
What is the tax rate applied to the Capital Gain?
Before calculating the CGT due, there is a CGT annual exemption of £12,300 (for the 2022/23 tax year), £6,150 for trustees, and this is available to set against the capital gain prior to calculating the tax due, assuming the exemption hasn’t been utilised against other capital gains in the tax year.
The normal rate of CGT applied to the gain after the annual exemption for residential properties is 18% for basic rate taxpayer (total income up to £50,270 for the 2022/23 tax year) and 28% for higher and additional rate taxpayer and trustees.
How do you report the gain to HMRC?
There is a new digital system to report the Capital Gain and CGT liability. The taxpayer needs to set up a CGT UK Property Account by visiting HMRC’s website. If you already have a Government Gateway account, you can use your existing login to sign in to create a UK Property Account. For new users, you will need to set up the Government Gateway credentials first.
At the end of the process, HMRC issues a reference number which you will need to give to your professional adviser in order for the authorisation and tax return completion process to be dealt with.
If you are unsure of whether your property disposal needs reporting to HMRC, then please do get in touch and we would be happy to advise.