Speed read: UK-resident individuals face and trustees a much tighter timeframe to pay capital gains tax ("CGT") and file a tax return after selling residential property in the UK from 6 April 2020. The new 30-day deadline will mean individuals need to take timely advice as soon as a property sale is being considered, to allow sufficient time to navigate the complexities of the CGT rules and to ensure financial records are in order to carry out accurate calculations.
What's the change?
From 6 April 2020, UK-resident individuals and trustees selling residential property in the UK will have a much shorter deadline to file a return to HMRC and pay any capital gains tax ("CGT") due.
Depending on the date of sale, individuals currently have between 10 and 22 months after a sale of property to pay any tax and file their self-assessment return (31 January after the tax year for online returns). For example, Mrs A sold a property in June 2018 making a gain for CGT purposes. Under the current rules, she had until 31 January 2020 to file her self-assessment tax return and pay the CGT due.
From 6 April, individuals will only have 30 days from completion of the sale to file a separate online tax return and pay tax due. The CGT will also be reported in the individual's subsequent self-assessment return. Non-UK resident individuals and corporates are already subject to a 30-day deadline to file a return and pay tax when disposing of certain UK property.
Are there any exceptions?
There are limited exceptions. The 30-day deadline will not apply to "no gain no loss" transfers (for example a transfer between a husband and a wife), and will not apply to sales made by charities or pension scheme investments.
The new deadline applies to sales of properties which complete on or after 6 April 2020. However if contracts are exchanged under an unconditional contract on or before 5 April 2020, but completion takes place on or after 6 April 2020, the new 30-day deadline will not apply.
What if I get it wrong?
Many people, including buy-to-let landlords and second home owners, may be blissfully unaware of the impending rules. Those who have not occupied a home for the duration of their ownership (for example due to separation or working abroad) may also be affected.
Individuals who fall foul of the rules will face an immediate penalty for late filing of the tax return and further, potentially tax-geared and extensive, penalties for both late payment and late filing of the return.
What do I need to do?
Given the complexities of CGT rules, including the availability of certain reliefs and the calculation of gains and losses, it will become essential to plan ahead and take specialist tax advice as soon as a sale is being considered. To meet the tight deadline, it will be necessary to make sure financial records are in order prior to a sale, including evidence of the initial purchase price, cost of any renovations and associated fees.
Tax rules relating to property are regularly developing and being tweaked by successive Governments. The 30-day CGT rule comes against a backdrop of fundamental changes to the way non-UK residents are taxed on income and gains arising from UK property introduced in the last two years, with further changes (such as the availability of mortgage interest relief and lettings relief) affecting UK and non-UK resident property owners and landlords from 6 April 2020.
If you would like to discuss the impact of the CGT 30-day rule or any other development in more detail, please speak to your usual DWF contact or a member of the Tax team.