From 6 April 2020, The Government will be introducing new rules for reporting and paying tax for individual and trusts when they are disposing of a residential property. Please note the new legalisation will not apply to companies.
Currently a UK individual or trust reports the disposal of a property on their self-assessment tax return and pays the CGT liability due to HMRC by the 31 January following the year of the disposal.
Under the new rules, a UK individual or trust disposing of a residential property after the 6 April 2020, will be required to report the gain and pay the CGT liability within 30 days of disposing of the property. A “Residential Property Return” will need to be submitted to HMRC to report the gains and the CGT will need to be paid within 30 days following the completion date of the sale. Where properties are held in joint names or in a partnership, each individual owner will be required to submit a Residential Property Return.
Who is likely to be affected?
Those most likely to be affected by the new rules will be:
- Buy to Let Landlords.
- Owners of second homes/holiday homes.
- Owners of multiple residential properties which are available to rent.
Exceptions to the new rules
There are some exceptions to when the Residential Property Return has to be submitted. It will not be required in the following cases:
- Where the gain is covered by principle private residence (PPR) throughout the period of ownership.
- If losses arise on the disposal of the property.
- If the gain will be sheltered by capital losses crystallised before the disposal has taken place.
- The gain on the disposal is covered completely by the individual’s annual exemption.
Deadline dates for submitting and paying HMRC
The deadline for submitting the Residential Property Return and making the payment is 30 days from the completion date of the sale i.e. when the legal title of the asset is transferred to the new owner.
How to make the Residential Property Return
The return must be submitted online to HMRC. For Individuals they must register themselves with HMRC online services account and submit and pay through the CGT UK Property Services Portal. Agents can report on behalf of individuals, via the HMRC Agent Services Account. However, individuals will still need to register for a HMRC online account and send an authorisation link to their agent.
HMRC will accept estimates when completing the Residential property returns. These figures can then be amended by resubmitting the return or via your self-assessment tax return. HMRC advise not to delay in reporting, as penalties will be issued for late submissions.
Penalties will be imposed by HMRC for submitting the Residential Property Return late. If a return is submitted late:
- Automatic late filing penalty of £100 up to 6 months late
- More than 6 months late, a further penalty equal to the higher of £300 or 5% of the tax due to be payable.
- More than 12 months late, a further penalty equal to the higher of £300 or 5% of the tax due to be payable.
- £10 daily penalties may also be levied for up to 90 days i.e. between 3 months and 6 months of the filing date.
Late payment penalties and interest will also be imposed.
Jamie has 3 residential properties which he sold in 2020/21. He also needs to complete a self-assessment tax return for 2020/21 to report his rental income and expense relating to the properties. He disposes of property 1 and 2 on the same day. The contracts are exchanged on 21 April 2020, and the sale completes on 4 May 2020.
Jamie needs to submit his Residential Property Return and pay his CGT liability on or before 3 June 2020.
The 3rd property is later disposed of – the exchange date of contracts is 29 May 2020 and the completion date is 16 June 2020. A further return is needed to be submitted and CGT paid accordingly on or before the 16 July 2020.
Principle Private Residence (PPR) and Letting Relief
New rules with regards to Principle Private Residence will be introduced from April 2020. On disposal of a property, which has been occupied by an individual as their main or only residence, PPR relief is usually available on part or the full amount of the CGT gain. From April 2020, PPR will be available on the actual time an individual lived in the property, as well as the final 9 months of ownership.
Individuals who move into a care home, or have a disability, will still be able to claim for the last 36 months of ownership.
Letting Relief is currently available for those who have let out property that is or has been their home in the past. When a property has been disposed of, letting relief is available to reduce the amount of CGT due on the gain on the disposal.
From April 2020, Letting Relief will only be available on the disposal of a residential property if the landlord has shared occupancy with their tenant.
These changes will be significant for property owners who currently let out their old home.
Robbie sold a property on 7 May 2019 which he owned for the 10 years i.e. 120 months. Robbie lived in the property for the first 5 years of ownership. He sold the house and made a gain of £80K.
Robbie’s PPR will be 5 years, being his actual period of occupancy plus the last 9 months of ownership i.e. PPR is 69 months. Therefore 69 months of the gain of £80K will be covered by PPR and will reduce the tax liability by £46K to £34K.
This remaining £36K would be subject to letting relief if Robbie lived in the property at the same time as the tenant and potentially reducing the liability further.
We have an experienced tax team who can advise on all aspects of tax on property, both residential and commercial. If you would like to discuss this or any other tax issues, then please get in touch.
Whilst every effort has been made by CavanaghKelly to ensure the accuracy of the information here, it cannot be guaranteed and neither CavanaghKelly nor any related entity shall have liability to any person who relies on the information herein. Information given here is for guidance only. Detailed professional advice should be taken before acting on any information contained herein. If having read the guidance here, you would like to discuss further; a member of our team would be pleased to help you.