With restrictions gradually  being eased off watch out on property disposals

New capital gains rulCapital gains  for residential properties, including buy-to-let from 6 April 2020

MAIN  POINTS

From 6 April 2020, residential property sales ( as the main residence is exempt, this leaves a  buy-to let [BLT] and second house) must be reported to HMRC and the CAPITAL GAINS  tax paid within 60 days of completion.

Sales covered by the only or main residence exemption do not have to be reported.

A separate return is required  for each property sold unless two disposals  occur on the same day.

HMRC is setting up a new system for the administration and tax collection and late filing penalties will apply and this is based on penalties for self-assessment.

This new regime  aligns the UK residents  with non-resident individuals disposing of UK based property. The non-resident disposal rules started in March  2015.

New rules

Finance Act 2019, Sch 2 requires that all disposals of UK residential property on or after 6 April 2020 by UK-resident taxpayers must be reported to HMRC within 30 ( now extended to 60 days) of completion if they generate a tax liability.  Properties which benefit from principal private residence relief do not have  to be reported.

 Reporting responsibilities/ parties

UK residents that  are  affected:

• Individuals
• Trustees
• Personal representatives
• Partners of partnerships and limited liability partnerships
• and joint owners of property.
• Owner of mixed properties (commercial and residential). There must be an apportionment and  the  gain on the residential part  is caught under the new rules.

 Outside Scope

• A disposal generating a capital loss
• Transfer between spouses
• Disposal by a company
• Residential accommodation
• Home for  individuals with disabilities/ mental disorders and for those recovering from alcohol dependency

 A gain which is fully covered by annual exemption does not have to be reported.

Reporting to  HMRC

The tax and the 60 day return are  regarded  as a declaration  and payment on account.

A self-assessment return is required to be filed as well. The tax has to be computed with all relevant information as if it is a final capital gains tax computation.

Unless a  capital loss has been reported it cannot be used for a set-off  when making the return. The taxpayer will however be able to claim losses realised in the tax year in their  self-assessment tax return.  

The default position is  for the annual exempt amount to be set against the residential property gain first. This applies when the taxpayer has other disposals in the year, for non- residential properties.

The taxpayers will have to estimate whether he/she will be a basic rate or higher rate taxpayer. The capital gains tax will be at  18%/28%  for residential property disposals. HMRC allows a period up to the self-assessment return deadline to amend the capital gains tax return (FA 2019, Sch 2 para 19(3)).

 Government Gateway Registration

If a taxpayer does not have a government gateway account, it would be  advisable  to register as soon as possible as the 60-day reporting and payment timeframe  does  not allow a grace period for taxpayers to register.

 Further points

A return is required by each individual owner for  a property. So where there are multiple owners , multiple returns will  have to be submitted,  in a case where a property  is owned as tenants in common.

 Penalty Regime

The  tax penalty regime will be the same as for standard self assessment without the £10 daily filing penalties:

• £100 initial late filing penalty;
• 6 months late: 5% of capital gains tax due or £300 – whichever is greater; and
• 12 months late: further 5% of capital gains tax due or £300 – whichever is greater.

Interest will also accrue on late payments.

 Conclusion

A client  disposing of a taxable dwelling will have to start collating information as soon as the property is put up for sale and continue to do so while going through the conveyancing. The Accountant should be notified  of the impending disposal.