Capital Gains Tax and the Reporting Regime for Disposals of UK Property

With effect from 6th April 2020, new requirements were introduced to report and pay capital gains tax in connection with disposals of UK residential property by UK residents. From enquiries we have received, these new rules remain relatively unfamiliar.

So what exactly are the requirements for Capital Gains Tax purposes when you sell your UK property? We detail below some of the key questions and answers to help you in understanding what is required under the CGT reporting regime for disposals of UK property.

I am a UK resident and I want to sell a residential property in the UK, what reporting requirements do I have under the current rules?

If you are a UK resident and you sell a residential property in the UK, which is not a property in which you have lived throughout your period of ownership as your home, then there may be Capital Gains Tax (CGT) to pay. If you do have CGT to pay then you will need to submit a separate CGT Return to HM Revenue and Customs (HMRC) and pay any CGT due within 60 calendar days from the date of completion.

What is a UK residential property for CGT reporting purposes?

A residential property includes a building used or suitable for use as a dwelling, properties in the process of being constructed or adapted for use as a dwelling, the garden or grounds of such a building and the right to acquire a UK dwelling ‘off plan’.

Common examples of the types of reportable residential property gains include gains realised on the sale of investment properties owned including holiday homes that you own in the UK, properties that you have let out or a house that you may have inherited.

What if I sell the property in which I live?

Normally, if you sell the house where you live and provided that you have lived in it throughout your period of ownership, you should not have any CGT to pay because any capital gain arising on the sale is likely to be covered by Private Residence Relief. However you should check the position, if for example, you have not lived in the property throughout your period of ownership, if you have let out all or part of the property at any time during your ownership, if the grounds exceed 0.5 hectares or you have used part of the property for a business.

Are all disposals of UK residential properties within the new rules?

If you are a UK resident, you only need to declare the capital gain on a separate CGT Return if there is a CGT liability to pay. If the gain is covered in full by reliefs and exemptions available, such as any unused annual exemption, Private Residence Relief etc. then no CGT Return should be required.

Please do note, however, that if a UK residential property is acquired for development and resale at a profit then this would be a trading transaction and as such charged to Income Tax rather than Capital Gains Tax.

Is it only the sale of a property which I need to report within 60 days of completion?

It is important to note that as well as sales of UK residential property, capital gains can also arise on the gift or sale at undervalue of a property. A gift or sale at undervalue will also need to be reported within 60 calendar days of completion.

How do I report the capital gain and CGT liability on the disposal of a residential property?

HMRC have introduced a standalone online system, which can be accessed at www.gov.uk, on which to report capital gains on UK residential property.

Once reported, HMRC will issue you with a payment reference to enable you to arrange payment of your CGT liability.

Whilst an online system, for digitally excluded taxpayers it is presently possible to request a paper form.

 What happens if I do not report the Capital Gain on the sale of a UK residential property within 60 days and there is CGT to pay?

Late filing penalties will apply if you have not reported the sale within 60 calendar days. Interest will also accrue on late payments of CGT.

 Do I also need to complete a Self-Assessment Tax Return?

Where you are also within Self-Assessment and as such required to complete an annual Self-Assessment Tax Return, you will need to complete and submit this as usual. As well as reporting all sources of taxable income and Capital Gains realised on the sale of other chargeable assets in the tax year, you will also need to include details of the sale of the UK residential property and the Capital Gains Tax paid on account on the Capital Gains Tax pages of your Self-Assessment Tax Return.

If you are reporting a ”one-off” disposal and you have no other reason to complete a Self-Assessment Tax Return, you should not need to register for Self-Assessment.

What if I am selling the property as a Personal Representative of a Deceased’s Estate?

Estates disposing of property also fall within these rules and are required to report Capital Gains on the sale of UK residential property within 60 days of completion where there is a CGT liability to pay.

 What if I am selling the property on behalf of a Trust?

Trusts fall within these reporting rules and therefore trustees will also need to report UK residential property sales within 60 days of completion if there is CGT to pay.

 Do I still have a reporting requirement if I don’t live in the UK?

Yes, if you are non-UK resident, you must report all sales of UK property and land to HMRC, even if you do not have any CGT to pay. You need to report the sale and if relevant pay any CGT due, within 60 calendar days from the date of completion.

For non-UK residents the reporting requirements extend to direct and indirect disposals of both UK residential and non-residential property and land.

Please note that the above is for general information only. Action should not be taken without obtaining specific advice related to your individual circumstances.

If you would like our assistance in relation to the CGT reporting on your sale of a UK property then please do not hesitate to contact our Tax and Trust Manager Samantha Hawkins or another member of our Wills, Probate and Tax Planning Team.