Capital Gains Tax (CGT) can be a tricky subject to get your head around, particularly when it comes to the selling of residential properties. Many solicitors, letting agents and estate agents often do not inform clients of CGT, due to the fact it may put people off of selling. Regardless, it is mandatory for all individuals to pay CGT when you sell or dispose of an asset, if your total taxable gains are above your annual Capital Gains Tax allowance. The Capital Gains tax-free allowance is £12,300 for individuals and £6,150 for trusts.
You can work out the gain for each asset (or your share of an asset if it’s jointly owned), whether that be personal possessions, shares, property or business assets you’ve disposed of in the tax year, by following these steps:
- Add together the gains from each asset.
- Deduct any allowable losses.
- The tax year runs from 6 April to 5 April the following year.
- You’ll need to report and pay Capital Gains Tax if your taxable gains are above your allowance.
As of 6th April 2020, HMRC have made it policy that all CGT will need to be reported by a maximum of 30 days after the transaction of a property that qualifies for CGT gains.
When Do I Need To Pay Capital Gains Tax On A Property?
When selling your main home, you will not need to pay CGT. Capital Gains on the selling of residential properties is likely to affect:
- A property not used as a main home
- A holiday home
- A property which is let out to tenants
- A property that has been inherited and not used as a main home
The following property transactions will not need to be reported for CGT:
- Sale of a main residence where the gain is wholly covered by principal private residence relief (PPR).
- Where a legally binding contract for the sale was made before 6th April 2020.
- If the disposal was made to a spouse or civil partner (nil gain, nil loss treatment).
- When the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (Annual Exempt Amount).
- If, after deducting all allowable costs, you made a loss on the disposal.
- If the property is situated outside the UK.
- Property developments where profits are charged to income tax.
If you are a non-UK resident or live abroad, you must continue to report any sales or disposals of interests in UK property or land, regardless of whether there is a gain or not. This must be filed within the 30-day timeframe which came into effect on the 6th April 2020. Previously, you were able to file CGT tax on a property through a self-assessment return (which defers the payment until your annual tax is owed), however this has since been scrapped in favour of the 30-day reporting period.
What Happens If I Don’t Report Capital Gains Within The 30-Day Period?
When HMRC first introduced the new legislation for paying on properties back in April 2020, the £100 fine imposed for late returns was delayed by HMRC for sales completed before 30 June 2020, so long as the gain was reported by the 31st July 2020.
It was reported that in the last 6 months of 2020, HMRC sent out 13,113 late filing penalties to landlords and second homeowners who missed the new 30-day tax window with 3,764 late filing penalties issued at the end of the third quarter (Q3) and 9,349 at the end of the fourth quarter (Q4). These have accumulated to £1.3million of penalty payments to HMRC.
However, whilst HMRC are currently issuing financial penalties for those filing their CGT late, they will continue to not issue late payment penalties for failing to pay CGT on UK property within 30 days until after 31 January 2022.
A HMRC spokesperson stated, “Moving customers closer to real time transactions helps ensure they still have money available to settle their CGT liability. We don’t want to collect penalties, just help customers get their tax right. That is why we took a lenient approach to penalties, to help customers familiarise themselves the change in the rules and did not issue late filing penalties for CGT payment on account returns.”
It’s also worth noting those facing any fines relating to CGT penalties, are able to appeal to HMRC, considering whether they have a ‘reasonable excuse’ for not filing on time. HMRC will also consider COVID-19 as a reasonable excuse for missing some tax obligations, such as paying payments on time, with these being handled on a case-by-case basis.
Nordens’ CGT Property service will take this hassle away from you, eliminating the possibility of any late payments whilst offering the highest quality assistance when the sale of your property has been negotiated and completed. If you’d like to know more about our CGT Property service, then please contact us at firstname.lastname@example.org or call 02085300720.
We hope this has outlined to you the new legislation and measures for the paying and reporting of Capital Gains Tax in relation to selling a property. If you require any more information on any new government schemes, regulations, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.