Reporting capital gains on UK property
Written by Ray Coman
In the circumstances of lockdown, few properties are changing hands at present. However, a new reporting requirement became effective from 2020-21 that affects all property owners who are liable to capital gains.
From 6 April 2020, it is a requirement for residential property owners to report to HMRC any taxable gains within 60 (previosuly 30 days) days of completion date for its disposal. Previously, the capital gains was reported only on the Tax Return, and the 60 day reporting requirement only applied to non-resident landlords.
Any capital gains tax is also payable by 60 days of the completion date. The extended 60 day limit applies to reisdential property only. Prior to 2020-21, capital gains tax was due by 31 January following the end of the tax year of disposal. The capital gain still needs to be reported on the Tax Return related to the tax year of disposal. For the purposes of Tax Return reporting and calculation of tax liability, the date of exchange determines the tax year in which the disposal occurs.
While agents, such as Coman & Co can assist with the reporting and calculation, it is a requirement for the landowner to have a personal tax account with HMRC for the report to be filed.
Penalties apply for late reporting of disposal, which could be as high as 5% of the tax due, depending on the degree of lateness.
The disposal of a property will not be liable to UK tax if the property owner lives in it. In practice, most people are exposed to capital gains tax on account of owning a second property that is let. However, two groups are also exposed to tax:
- Individuals with a secondary residence that is not let out, such as a holiday home.
- Those who do not live in the only property that they own, usually because it is let out. A gain related to a period during which a person does not live in the property is potentially liable to capital gains tax. The period of absence can be a deemed period of occupation provided the owner moves back into the property before it is sold and provided the owner did not own another home while away from the property being disposed of.
Partial exemption occurs where the property has been both lived in and rented out by the owner.
It is not necessary to report a capital gain to HMRC if the gain is less than the annual exemption and the proceeds are less than four times the annual exemption. The second requirement is especially relevant to UK real estate. While a property could have been sold for a modest gain or even at a loss, it is still a requirement to report it to HMRC. Most properties will be sold for more than four times the annual exemption, which for 2020-21 is £49,200. In practice therefore, the exemption will mostly apply to cases of shared ownership.
The extra reporting, even in cases where there is no tax to declare, could be regarded as a hassle. However, reporting a loss will make the loss available to be set against capital gains of the same year or carried forward indefinitely and set against any capital gains after the annual exemption of a future tax year. The loss can be used to reduced gains on the disposal of any assets not just property. Therefore, loss reporting could be useful in reducing exposure to tax on the disposal of shares and investments.
As an exception to the above, a non-resident must report a disposal of property, even if there is no tax to pay.
Technically, a person who leaves the UK between exchange and completion of a property that they have always lived in, would have a requirement to report. For UK residents, the requirement to report and pay tax within 30 days of completion applies only to residential property. For non-residents, the requirement applies to non-residential land and buildings as well.
Coman & Co can assist with:
- Tax planning ahead of planned disposal, such as the use of spousal exemption, reoccupation of the property, and the use of available losses and allowances;
- Calculating and reporting Capital Gains Tax on UK property for our clients;
- Determination of principal private residence relief and effective rate of tax on disposal;
- Advising on tax deductible costs;
- Identification of improvement costs especially as compared to those classified as repair; and
- Advising on the implications of the rebased 6 April 2019 value for non-residents.