When you complete, the clock starts ticking
Thinking of selling a property? Understand your obligations to pay Capital Gains Tax and report the sale to HM Revenue & Customs. That way, you won't get caught out, writes Neil Moon, Partner of Nottingham based chartered accountants and chartered tax advisors, Page Kirk.
After the rules changed in April 2020, there are many landlords and property investors who still don't know that if they sell a residential property, they must report and pay capital gains tax to HMRC within 30 days. Penalties apply if this report is late.
Do I need to make a 30-day report?
If you sell UK residential property where there is capital gains tax to pay, you must report this and make the payment to HMRC within 30 days.
You do not need to report the sale if there is no capital gains tax to pay, if the property is not residential or it is outside the UK.
There will be no capital gains tax to pay if, for example, you have lived in the property as your main residence throughout your period of ownership. Or there may not be capital gains tax to pay because the gain you have made on the property does not exceed the annual exemption.
A 30-day report also applies to representatives of trusts and executors of estates selling residential property.
How do I know if I have to pay capital gains tax?
It is the seller's responsibility to calculate the gain on the sale of a property and consequently the tax due.
Unlike selling your own home, when you sell a second home, rental property or any other type of property or business asset that you have made profit on, you are liable for paying capital gains tax.
The CGT tax-free allowance is £12,300 for individuals and £6,150 for trusts. After this, those on the basic rate of income tax will pay the standard rate of 18%.
Those whose income is above the Basic Rate of income tax will pay 28%. Rates of 18% and 28% apply in circumstances involving property.
How do I calculate the capital gains tax when selling a property?
Often, you will need to make some assumptions when calculating how much capital gains tax is due on the sale of a property, because the rate of tax depends on the level of your total taxable income, which you do not know at the time of calculating the CGT.
You will need to know whether you can claim any exemptions against the gain; claim any capital losses you might have accrued; and the extent to which you can off-set the annual exemption. Your accountant can, however work out the best way to reduce the amount of capital gains tax on the property using tax reliefs such as main residence relief.
How do I make the 30-day report?
You do this on the HMRC website by creating a Government Gateway account and setting up a capital gains tax on UK property account. If you are unable to do this, your accountant can help create it for you. You do not need to wait until the property is sold to create an account and, in fact, it is advisable to contact your accountant to let them know you are considering selling a property before doing so, as there might be action you can take to reduce any potential gain.
When do I need to make the report by?
You will need to make the report within 30 days from date of completion, not the date of exchange.
When do I have to pay the capital gains tax?
Within the same period of the report deadline – 30 days of completion date.
I already complete a self-assessment tax return. Do I still need to make a report?
You will still need to file a report, even if you complete a self-assessment form. You will also need to report the gain on your tax return in the normal way.
Do I still have to report and pay if I'm a non-UK resident?
Rules known as non-resident capital gains tax (NRCGT) have applied since April 2015 to non-residents selling UK property. The changes will mean that all NRCGT must be paid and reported within 30 days of completing on the property sale. A report must be filed regardless of whether there is capital gains tax to pay or not.
What if there is no capital gains tax to pay? What do I do?
A report does not need to be filed if there is no capital gains tax to pay on property, but detailed calculations will still be required to determine this.
There is a vast array of exemptions and reliefs that are in place for capital gains tax. With capital gains tax being a complex area, we recommend that you consult a trusted firm of chartered accountants, as a professional team can help you to save significant amounts of money and time.
If you would like more information or advice on capital gains tax or would like us to file a report and consider ways in which you could reduce your liability on the sale of your property, please contact a member of the team by calling on 0115 955 5500 or email at firstname.lastname@example.org.