From 6 April 2020, if you’re a UK resident and sell a residential property in the UK that is not exempted from Capital Gains Tax (“CGT”), you will only have 30 days to calculate, report and pay any CGT owed. Failing to pay any CGT by this deadline will result in penalties being issued.
Who will be affected by the changes?
Any UK resident or Trust (including executors or administrators of a deceased persons’ estate) disposing of UK residential property by way of sale, gift or otherwise may have to calculate, report and pay any CGT within 30 days after the disposition. Where a property is held jointly or in partnership, each owner must calculate, report and pay the CGT due on their own share of the disposal within the deadline.
However, CGT will not need to be paid by the new deadline if any of the following apply:
- a legally binding contract for the sale of the residential property was made before 6 April 2020;
- the residential property is a person’s main home and qualifies for Private Residence Relief throughout the duration of ownership;
- the sale or disposal was made to a spouse or civil partner;
- the gains made are within the tax-free allowance;
- the residential property was sold for a loss; or
- the residential property sold is outside of the UK.
The majority of those selling residential property will be selling their main home and therefore will be unlikely to be affected by the changes, as in most cases those selling their main home will qualify for Private Residence Relief and therefore do not pay any CGT. This should nevertheless be confirmed by a professional tax adviser, as certain criteria need to be met in order to qualify for the relief.
Those most likely to be affected by the changes will be those individuals selling their rental properties or second homes, where the relief will not apply.
What action will those affected need to take?
HMRC have launched a new online service for those affected to report and pay any CGT that may be owed. The payment will be treated as a “payment on account” against a person’s total income tax and CGT liability for that tax year.
If the 30-day deadline is missed by:
- up to 6 months, a penalty of £100 will be issued;
- more than 6 months, a further penalty of £300 will be issued or 5% of any tax due, whichever is greater; or
- more than 12 months, a further penalty of £300 will be issued or 5% of any tax due, whichever is greater.
For large disposals, these penalties can be substantial and it is therefore important to prepare for and meet the new deadline.
In order to meet the 30-day deadline, preparation is key. For those affected, it would be prudent to contact a professional tax adviser as soon as the decision is made to dispose of UK residential property. This will ensure that the CGT is calculated in plenty of time and the payment can be made swiftly after the disposition, avoiding any unnecessary penalties.
If you have any queries about this blog, please do not hesitate to contact our Real Estate Team.
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