On 6 April 2020 significant changes came into play relating to how Capital Gains Tax is calculated when selling a UK property. But there is something of a ‘soft landing’ with HMRC offering some breathing space from penalties in the first few months. Peter Webb, our International Tax Manager, explains the implications:
Earlier this month the deadline for paying Capital Gains Tax (CGT) following the disposal (or sale) of residential property in the UK changed. Sales now need to be reported to the British tax authorities, HMRC, within just 30 days with an estimate and payment of any CGT due within 30 days too. Previously only non-residents needed to report such sales in that timeframe.
Automatic late filing penalties and late payment interest will apply if the new deadlines aren’t met. However, in a welcome relaxation of the rules, HMRC have confirmed that these charges won’t apply for disposals made before 31 July 2020 if the new deadlines are missed.
Thankfully, if there is no tax to pay on the disposal (for example if you are selling your family home and the conditions for main residence relief have been met) you are not required to report the sale to HMRC.
Previously UK residents could report such sales on their annual Tax Returns with any tax payable due by the 31 January following the end of the tax year. This means, for example, that if you sold your UK property on 31 March 2020 any CGT would be due on 31 January 2021, with the same date for reporting the sale to HMRC too. However, for a property sale taking place on 6 April 2020 the tax payment and reporting deadline is just 30 days later – falling on 6 May 2020.
Do note that the tax payable within 30 days is an estimate and described by HMRC as a ‘payment on account’. The actual CGT amount won’t be known until the end of the tax year; other disposals and income will affect the exact final figure. It’s worth bearing in mind that chargeable gains on residential property stand at 18% and 28%, depending on your taxable income, and if these exceed your annual CGT allowance (which is £12,300 for 2020/21).
Disposals must be reported on your Tax Return. At this point any adjustments can be made as and when you make your balancing tax payment for the year.