*Updated 1 May 2020*
Non-UK residents have been subject to tight reporting and tax payment deadlines on the sale of property for a number of years now, and these rules are now being extended to UK resident property owners.
From 6 April 2020, where a disposal of UK residential property is made, there are new reporting requirements. The disposal must be reported to HMRC within 30 days of completion and the Capital Gains Tax payable must also be settled at the same time.
There is a new standalone return which needs to be filed electronically with HMRC where the disposal gives rise to a chargeable gain. Taxpayers also have the option to submit a return where the disposal gives rise to a loss and this might be beneficial where the loss can be used to reduce a previous gain and generate a tax refund.
A return is not required if:
- The gain is covered by private residence relief (i.e. the property was a main residence)
- The gain is covered by the annual exemption
- The gain is covered by brought forward capital losses
- It is a no gain/no loss disposal such as an inter-spouse transfer
Any disposal is still required to be disclosed on the individual’s tax return if they are within the self assessment regime. Where they are not and the return and tax paid is correct, there is no requirement to submit a tax return.
There are circumstances where estimates may need to be made in order to submit the return within the timeframe. The new rules allow for reasonable estimates and amended returns can be submitted to make corrections to the return. Alternatively, the final position can be reconciled via the tax return.
In the event that an individual is selling a property which has mixed residential and commercial use, for example selling a shop together with a flat above, then the residential element of the sale will be caught by these new rules and apportionment will be required.
Taxpayers also need to be aware that there is a penalty regime for late filing of these returns and these penalties can be significant once the return is more than 3 months overdue. However, HMRC have confirmed that there will be an initial ‘soft landing’ and will not issue penalties for late returns submitted up to 31 July 2020. This covers transactions from 6 April 2020 to 30 June 2020. Interest will still be applied on tax paid late though.
In our experience, HMRC were quick to issue penalties when the non-resident reporting regime was introduced and convincing HMRC to reduce or cancel these penalties was difficult. We expect the same approach by HMRC with this new regime once the penalty holiday ends on 31 July 2020.
If you are unsure whether your property sale will be caught by these new rules or would like any further information, please contact Jill Walker or your usual AAB contact.