Changes to self-assessed tax returns and capital gains tax

Cara Grant, Private Client Partner, discusses changes to capital gains tax and self-assessments in relation to disposal of residential property.

Since 6 April 2020, UK residents who dispose of residential property that does not fall within the principal private residence exemption are now required to submit a provisional return of the estimated gain within 30 days of the disposal.  A similar requirement applies to non-UK residents who dispose of UK property interests on or after 5 April 2019.  In each case, payment must also be made within 30 days of the disposal.  

The previous system meant that capital gains tax (‘CGT’) would be due anywhere between 10 to 22 months from the date of the disposal. The Finance Act 2019 cuts this to 30 days, as HMRC attempts to recoup tax more quickly.

This applies to UK residents and is most likely to affect owners of second homes or buy-to-lets with taxable gains, although it also applies where no money has changed hands, such as where the property has been transferred in to a trust or gifted to a family member. 

If an individual is already within the scope of self-assessment due to other liabilities, they will need to declare any gain from the disposal of residential property on their self-assessment tax return. HMRC have launched a new digital service to enable taxpayers to report and pay CGT online.

Private residence relief may be available on a disposal of residential property if it has been occupied as the main residence of the owner(s) during the period of ownership. However, if the property has been rented out or left unoccupied for a period of time due to divorce, separation, working elsewhere or abroad, the relief may be affected. 

Gains arising on disposals of residential property that do not qualify for principal private residence relief are taxable at the rates of 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers.   

HMRC has confirmed that the new rules only apply to taxable gains realised on disposals made after 6 April 2020. If contracts were exchanged on or before 5 April 2020 and completion took place on or after 6 April 2020, the 30 day filing deadline does not apply. 

Penalties and interest apply if the 30 day deadline for filing or payment of tax is missed. Slightly different rules apply to non-UK residents and those who represent Trusts. 

If you are unsure about your liability to capital gains tax, we will be pleased to assist you. Please contact us for more information.

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