The property market and Capital Gains Tax

Amber Heron | 02 Nov 2020

INSIGHTS

Amber Heron is the Personal Tax Director at Harper Macleod and specialises in helping people with their taxation issues. Here, she looks at the potential Capital Gains Tax implications of selling a property.

With the “post lockdown” property market busy in Shetland over the summer and autumn months it is important to know and understand that if you do sell a property that has not been your home throughout your ownership, you must now check your exposure to Capital gains Tax as early in the sale process as possible.

From 6 April 2020 UK resident individuals, trusts and personal representatives pay capital gains tax (CGT) on UK residential property disposals within 30 days of completion of the sale. This applies to sales of all properties where a gain arises and full Principal Private Residence Relief does not apply.

The new standalone online return will need to be filed and a payment on account of CGT made, within 30 days of the completion of the transaction. Essentially this regime will therefore apply to second and holiday homes and buy-to-let properties or any other property where a taxable gain is incurred.

How do I report a gain?

In order to report the gain it is necessary to create a “Capital Gains Tax on UK Property” account with HM Revenue & Customs (HMRC). To achieve this, a Government Gateway user ID is required.

In order to file the return a CGT calculation should be prepared taking into account all available reliefs and exemptions. It should also take into account your expected income for the tax year in which the gain falls, to allow a best estimate of the gain and establish the correct tax rates to be applied to it. This calculation is used to establish the CGT that is payable within the 30-day window.

Self-Assessment

In addition to the 30 Day Return, it is likely that the disposal of the property will also be required to be reported on a self-assessment (SA) return. If you do not already complete an SA tax return you will need to apply for a reference to allow you to do this. The sale will be declared on this return along with all of your other income and gains and credit will be given for the tax already paid.

Why do I need two returns?

It is important to remember that the 30-day CGT return is only reporting the position at that point in time in the tax year and only in relation to that particular disposal. It does not take account of anything else that might happen later in that year. It is also important to note that in many cases, where there is no tax to pay, a 30-day return might not be required but an SA return will be.

What if I don’t submit my returns?

As with the other tax systems, failure to submit a 30-day CGT return will result in late filing penalties and interest will accrue if the tax remains unpaid after 30 days. Failure to submit an SA return will also be subject to penalties and interest.

Due to the short reporting window it’s important to act swiftly to ensure that both registration with HMRC and the CGT calculations can be completed timeously. The calculations can be complex and in some cases may require valuations to be obtained therefore good practice would suggest taxpayers turn their mind to the tax position at the point that they decide to market their property.