New UK capital gains tax rules: Are you affected?

Recent developments with Covid-19 and Brexit have led the UK government to offer a Stamp Duty holiday for properties valued at £500,000 or less. This makes it an attractive time to sell. However, if you’re considering disposing of property you should take note of these new changes before making the decision.

30 days to report and pay

A rule that used to only apply to non-UK tax residents has expanded to apply to UK tax residents.

Up until 5 April 2020, a UK tax resident who sold a UK residential property would declare the disposal on their self-assessment return. The due date for reporting the disposal and paying any CGT was 31 January following the year of disposal.

From 6 April 2020, a disposal of a UK residential property by an individual or trust that results in a taxable gain will now need to be reported to HMRC within 30 calendar days from the date of completion, alongside the payment of estimated capital gains tax.

There are some cases where you do not need to report:

• If primary residence relief covered the whole period (i.e the property was your main or only home for the entire period of ownership)
• If the property is outside the UK
• If you sold the property at a loss
• If your gain fell within your annual exception allowance (£12,300 in the 2020/21 tax year)
• If you had any losses to carry forward on your CGT portfolio
• If you sold the property to a spouse or civil partner
• If the property belongs to a company, pension scheme or charity

Primary residence relief (PPR) is a tax relief that allows you to sell your main home without having to pay CGT, however it doesn’t always apply.

Some examples of cases where primary residence relief wouldn’t fully apply:

• A property that you lived in and then let out
• A holiday home
• If you’ve been travelling out of the country for a large stretch of time
• An inherited property
• If you’ve recently been divorced and have been living separately
• If part of your home is used solely for business purposes
• If you own more than one property, it will only apply to one of them (your main home)

Deemed occupation

The change to the reporting regime has been coupled with a change to primary residence relief.

Prior to 6 April 2020, the last 18 months of ownership were exempt from capital gains tax as “deemed occupation”.  This meant that if you sold a property, you’d automatically get the final 18 months of ownership as primary residence relief regardless of the purpose of the property during that time (and you wouldn’t have to pay CGT on those months).

The deemed occupation has now been reduced to nine months, which could mean a nasty surprise for anyone unaware of the change who was not living at the property in question over the past 18 months.

Lettings relief

Another big change is to the secondary relief called lettings relief. Previously, if you lived in the property as your primary residence and subsequently let it out, you would be entitled to primary residence relief for the time you lived there and lettings relief for the period you rented it out.

The amount of lettings relief available is the lowest of the amount received in Private Residence Relief, £40,000 or the chargeable gain you made whilst letting out the property.

Now lettings relief is limited to live-in landlords, so unless you are also living on the property with your tenants, you can no longer claim lettings relief.

How to report gains

The reporting requirement is an online submission to HMRC. However, if you wish to employ a third party authorised agent to report for you, you’ll need to register for an account with HMRC and then grant permissions to the agent. Setting up your account with HMRC can take some time as part of the process works via the postal system, so it’s essential to plan ahead and leave enough time for this process.

If a property has multiple owners, each owner is responsible for reporting their share of the gain and a separate return needs to be made for each UK residential property sold.

Consequences of missing the deadline

You have 30 days from the date of conveyance to report your disposal and pay any tax due, otherwise you’ll get a late filing penalty and be charged interest.

If you miss the deadline by:

• Up to six months: you will get a penalty of £100
• More than six months: a further penalty of £300 or 5% of any tax due, whichever is greater
• More than 12 months: a further penalty of £300 or 5% of any tax due, whichever is greater 

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If you’re considering selling a property that has not been a primary residence for the full period of ownership, it’s a good idea to plan ahead.

We can do forecast personal tax calculations for you to give you a good idea of what your CGT position will be. Contact us on +44 (0) 20 7759 7553  or send us an email and we’ll provide you with the expert advice you need.