Since 6th April 2020, HMRC has made vital changes to the deadline for filing and paying Capital Gains Tax (CGT) on residential properties disposal. These changes apply to both UK and non-UK residents.

Let’s identify the case it doesn’t apply to first:

These changes do not apply to you if you are using the residential property in its entirety as a private residence during the period of ownership.

This article will simplify these changes and clear up any confusion about when it is ideal for reporting and how and when you must pay any tax.

What Does the Term “Dispose UK Property” Mean?

Disposing of UK property in this context involves all forms of gift, exchange, sale or compulsory purchase. These changes apply to the above meanings of disposal, regardless of if:

• it is an interest of the property
• it is the whole of a residential property 

Apart from the structure, the residential property also includes:

• Grounds
• Lands
• Ancillary buildings to the primary residence

Also, the below changes apply equally in some scenarios to executors, trustees. It also includes ordinary taxpayers, but these are complex and will require specialist advice for guidance in many cases.

Changes Made to Disposing UK Property or Land

We will categorise the changes made according to if the individual is a UK resident or not at the time of disposal.

If You Are Not A UK Resident at Disposal

In scenarios like this, you must report the disposal to HMRC within 60 days of the complete transaction. This is a constant condition, regardless of the tax position and applies to UK land, not only residential property. 

Another thing to note:

From the changes made on 6th April 2020, there is no allowance to postpone CGT payment through a self-assessment tax return. HMRC has replaced the previous reporting service, and every non-UK resident has to use the new online service.

If You Are a UK Resident on Disposal

For UK residents, we need to clarify a couple of areas as it starts to get a bit confusing from here. 

You must report the disposal of a UK residential property within 60 days of sale completion with HMRC’s online reporting system if:

• You have capital gains tax due. If you can’t use the online system, paper versions are available after making appropriate arrangements with HMRC.

You may not report the disposal of a UK residential property within 60 days if:

You have no capital gains tax because the main residence relief for capital gains tax has already covered it. 

When does this happen?

This is applicable in areas where the residential property was your home and wasn’t used for any business functions, with the garden size in the excellent area. Other examples of this are an inter-spouse transfer. Many individuals will typically fall into this category.

You have no capital gains tax on the sale as a result of other reliefs. 

When does this happen?

• When your capital losses cover the gain on the sale
• When your annual CGT exemption covers the gain

In cases like this, you must declare the sale in your Self-Assessment Tax Return. Alternatives to this are:

• Reporting using HMRC “real-time” reporting service at any time between the date of disposal and 31st December the next tax year which you made the gain.
• Register for Self-Assessment to declare the disposal

Other Details You Need to Know About Capital Gains on Residential Property

If you file annual Self-Assessment Tax Returns and are quick enough to file your return within 60 days of the sale completion, you can waive the 60-day requirement of the online CGT Reporting system. However, this allowance is typically for:

• A limited number of taxpayers can complete the affairs quickly after the end of the tax year.
• Individuals who fulfil the above are also given a chance to settle their CGT liabilities according to the standard Self-Assessment rules.

If you’re in doubt, it is always better to seek professional advice as HMRC will issue fines accordingly if you’re late. Other details you should know to avoid fines include:

• You should take the disposal date as the day you exchange contracts and settle the sale for record purposes. HMRC will calculate the 60-day reporting timeframe from when you complete the sale. 
• You must pay all the capital gains tax within the same 60-day reporting timeframe. 
• The CGT liability is partially based on your expected yearly income for that tax year. If you’re in a profession where taxable income is not as predetermined, you might be required to file a revised CGT Report online or make a claim of overpaid tax through your Self-Assessment Tax Return.

FAQs

Check out this FAQ section for any questions we might not have answered above.

How do I determine if a building is a UK Residential Property?

A UK residential building is any property located in the UK that anyone has used as a dwelling. The most popular types of residential property gains are from disposing of the following investment properties:

• Inherited property or house
• Owned holiday home In the UK
• House you might have rented to another individual

What happens if I sell the house I live in?

If you plan to sell the house you live in, you don’t need to pay capital gains tax. This is because the private residence relief applies in that scenario where if you had let out a section of your house or used it for business, you will have to report it and pay tax.

What if I am a UK Resident and Sell property abroad?

If you are a UK resident that decides to sell any property abroad, you are not required to report it to HMRC or pay tax on the capital gains made on the sale within 60 days of the transaction date. However, you will have to enter this sale in your Self-Assessment Tax return as expected. If you are a UK resident that made a gain by selling properties abroad, you can pay HMRC the Capital Gains Tax amount as a real-time capital gain tax service, and you still have to report it on your self-assessment tax return.

What do you need to do this?

All you need to report this is to make a government gateway user ID and password. You also have to upload a file in JPEG or PDF format that shows the calculation of capital gains tax and capital gains.