Capital gains tax on residential property – the 30-day rule

Capital gains tax (CGT) on property is charged at different rates and for residential property, it is now a requirement to report and pay any taxable gains within 30 days of the completion of a sale, warns accountancy firm Alexander & Co

'Capital gains tax (CGT) is broadly charged on the sale of any capital asset which has increased in value since it was originally acquired. The normal reporting deadline for capital gains is 31 January following the end of the tax year in which you make a gain. CGT on residential property however has differing rules and differing rates as it is now a requirement to report and pay any taxable gains within 30 days of the completion of a sale,’ said John McCaffery, tax partner and head of tax at Alexander & Co.

CGT may be payable on any gains made from the disposal of a commercial or residential property. This could include a sale, gifting a property, or transferring it to someone else other than your spouse or civil partner. However, CGT is typically not payable on your own home subject to meeting a number of conditions, and an annual allowance of £12,300 may also apply for UK residents.

Property that may be liable for CGT includes:

  • Residential buy-to-let property
  • Homes that are used commercially or if you let part of it out
  • The sale of a commercial property
  • The sale of a second home or holiday homes

30-day capital gains tax payment warning

From 6 April 2020, any gains from UK residential property sales are required to be reported to HMRC and paid within 30 days of completion of the sale. Failure to do so could result in interest charges and penalties.

McCaffery said: 'For disposals before this date, any capital gains should have been reported in the same way as any other gain, by preparing and submitting an annual self assessment tax return, the latest date this should have been reported was in a 2019/20 Self Assessment, which was due on 31 January 2021.

'Many sellers and their legal advisers appear to be unaware of this rule change. We are seeing many cases of individuals who contact us retrospectively on this matter, who have been subjected to late filing penalties.

'For those who are required to report a capital gain within 30 days of a sale, they are also subsequently required to submit a self assessment tax return for the year in which the sale occurred. Essentially the initial payment should be seen as a payment on account and the subsequent Self Assessment tax return ensures the correct amount of tax has been paid in the tax year.'

How much capital gains tax will I pay?

When it comes to property, the rate of CGT is higher than that of other assets.

McCaffery said: ‘Higher rate and additional rate taxpayers are liable at 28%, while basic rate taxpayers are liable at 18% (and then 28% for any gain that takes them above the basic rate band).’

What is the capital gains tax allowance?

Most UK taxpayers have a capital gains annual allowance, meaning they can usually earn a certain amount tax free from CGT each year.

For the 2021/22 tax year, the capital gains annual allowance is £12,300. This means most UK taxpayers can earn this much before becoming liable for CGT. Married couples and civil partners will each get an allowance and therefore may be able to achieve tax-free gains of £24,600 on jointly held property.

Second homes

For those with second homes, you may be able to claim relief if the property was once your main home. However, this may have some effect on the tax liability of your current main home. Speak to a professional for advice on electing your main residence and tax liability.

Calculating CGT on property

In order to calculate a capital gain on a property, you will need to gather:

  • the dates in which you purchased and disposed of the property;
  • confirmation of the property purchase price and sale price;
  • any allowable costs, from renovation works to stamp duty and legal fees; and
  • confirmation of any tax reliefs you are eligible to claim.

How to report capital gain to HMRC

Reporting capital gain to HMRC can be done so using their online service.

'If the property was sold on or after 6 April 2020, the gain needs to be reported and paid to HMRC within 30 days of completion of the sale,' said McCaffery.

'Where residential property was sold before 6 April 2020, this should have been reported at the latest in your 2019/20 tax return, which was due on 31 January 2021. If this is still outstanding, you should file this as soon as possible, as the penalties and fines for late payment can be substantial.'

'If you are not a UK resident, the sale of all UK property must be reported to HMRC within 30 days, even if there is no tax to pay. If tax is due, this should be paid within 30 days also.'

This article was provided by Alexander & Co

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