Capital gains tax 60-day reporting – could this affect you?

The short turnaround reporting on residential properties by UK residents has been effective since 6 April 2020, and this is something that could affect you if you are considering selling or gifting an interest in a UK residential property.  Until the Autumn Budget Day on 27 October 2021 the time limited was just 30 days, but this has now increased to 60 days with immediate effect as recommended by the Office of Tax Simplification. It is a change welcomed particularly by accountants and tax advisers and whilst still a tight turnaround time does provide a little longer to assist their clients.

When is the capital gains tax payment due and how is it reported to HMRC?

Since 6 April 2020, a capital gains tax (CGT) return had to be filed with HMRC within 30 days of completing on a disposal of an interest in residential property if certain criteria are met. This has now increased to 60 days from 27 October 2021. The resulting tax liability must also be paid within 60 days of completion. This timescale can prove challenging for cash flow as well as reporting.  Unfortunately, penalties will be imposed if the filing is submitted late and interest will accrue for late paid tax

A 60-day CGT return is not required if the disposal has not resulted in a capital gains tax liability, for example if:

• The residential property disposal has resulted in a capital loss
• The gain (together with other residential property gains that have already happened in the same tax year) is within the annual capital gains tax exemption
• Reliefs are applicable to the property disposal which reduces the taxable gain to nil
• Capital losses are available to be used against the gain to reduce it to nil, either from previous tax years or from disposals in the current tax year, before the completion date

There are slightly different rules for non-residents which are not covered in this article. Any non-resident disposing of a direct or indirect interest in UK residential property should seek tax advice well in advance of the disposal taking place as the 60-day filing will apply even if no tax is payable.

Even if a 60-day CGT return has been filed and capital gains tax has been paid, the disposal will still usually need to be reported on the annual self-assessment tax return completed after the end of the relevant tax year. A credit will be given for the tax paid during the year. In most cases the 60-day return will have been filed on an estimated basis as income affecting the CGT rate will not be known until after the end of the tax year.

The disposal may be a mixture of residential and non-residential property. If the property is sold with land, it will be important to determine whether that land is regarded as forming part of the residence or if it is non-residential.  Where there is a mixture, only the gain on the residential property part is required to be reported within 60-days, so this will need to be valued separately.

The cost of any improvements or extensions to the property are normally allowed as an addition to the original acquisition cost/value when calculating the gain/loss on disposal so it is important to hold on to records of this sort of expenditure.

If the property is being sold by more than one owner, each owner will need to consider if they need to file a 60-day CGT return. Companies are not subject to the 60-day CGT reporting.

When might a capital gain arise other than on a sale?

It is important to note that it is not just the sale of a property that will trigger a capital gains tax liability. It could also occur when a property is transferred by way of a gift or a transfer at undervalue. Spousal transfers are normally treated as made at nil gain/loss so would not need to be reported. However, a transfer between spouses following permanent separation may give rise to a capital gains tax liability and advice should be sought. If the disposal is a transfer or gift at undervalue of the property, a valuation of the property will be required to calculate the potential gain and tax at stake. It is important to identify if a valuation is needed at an early stage in proceedings to allow sufficient time to arrange for one to be undertaken.

Main residence relief

Relief from capital gains tax is available when somebody sells their only or main residence. The rules for this relief can get rather complicated for farmhouses or cottages with large gardens, paddocks or outbuildings or where the property has not always been used as the main residence or an election has been made in favour of another residence. If there is any doubt as to whether main residence relief would fully negate the gain, advice should be taken as soon as possible in case there is a reporting requirement. Even with a 60 day time limit it can take some time to properly identify and investigate main residence relief.

How to report and next steps

Before you make a 60-day CGT return, you need to have a Government Gateway account and a Capital Gains Tax account online – we are unable to set these up for you. As soon as they are set up, we can complete the capital gains report on your behalf as your agent. HMRC will not issue a payment reference number to enable you to make the necessary tax payment until your CGT return has been submitted. We can provide you with step by step instructions on how to set up your Government Gateway account and Capital Gains Tax account should you need them, but we would recommend that you allow a few days to set everything up, just in case there are any problems.

The disposal of UK residential property is now something that requires advice ideally before or as soon as possible after the transaction has completed. The tax implications of a disposal may not be straightforward and the penalties for late filing can add up quickly. If you have any questions or would like to discuss things further, please contact us.

For more Autumn Budget analysis, visit our Budget hub.