HMRC have confirmed they will be issuing over 14,000 letters before 30th November to individuals who have sold a UK property in 2018/19, that didn’t appear to be their main home and which could therefore potentially be subject to UK Capital Gains Tax rules.
In other words, HMRC have been supplied with full details of thousands of UK property sales and they have matched these to submitted UK Tax Returns, identifying some 14,000 gaps in Capital Gains reports they believe should have been made.
2018/19 Property Disposals
The disposal of a UK property during the 2018/19 tax year should have been reported to HMRC on the 2019 Self Assessment tax return, unless it qualified as a main home / private residence. If there was a taxable profit on sale, Capital Gains Tax would have been due for payment on 31 January 2020.
Whilst HMRC have clearly reached conclusion that these 14,000 property sales were not the main home of individuals, and assuming there are many sales where this was indeed the case, it doesn’t necessarily follow that any profit would be subject to tax given there are a number of exemptions and reliefs that could apply to the gain, such as:
- This was a transfer between married couples/partners – a specifically tax exempt event
- The profit made on sale was covered by brought forward capital losses or the Capital Gains Tax Annual Exemption (£11,700 in 2018/19)
- The property was previously the main home of the individual. This could allow for significant proportionate relief relative to the time the individual lived there and the last 18 months of ownership. (18m is relevant to 2018/19 / now 9 months)
- If the property used to the be main home of the individual and was subsequently let out before being sold, then Residential Lettings Relief of up to £40,000 could be deducted from any profit (again relevant to 2018/19 but no longer available for sales after April 2020)
- The individual was non UK resident when the property was sold, and could therefore substitute the April 2015 value, instead of a perhaps much lower cost when calculating the gain on sale. It’s important to note that any sale made by a non UK resident should have been reported within 30 days of sale, even if there wasn’t any chargeable gain. It follows that if no return was made to HMRC, there will now be significant accrued penalties which HMRC will have no hesitation in charging.
HMRC will be sending these letters to individuals who they believe have made a gain in the 2018/19 tax year, with copies being issued to their registered tax agents if applicable. For individuals who have already submitted a tax return for 2019, HMRC will suggest that a revised tax return is submitted to include the Capital Gain, and for those who haven’t submitted a tax return, the letter suggests that a full disclosure is made, using their online disclosure facility.
The letter advises that if you do not have Capital Gains Tax to pay then you do not need to do anything further.
If there is indeed a chargeable gain to report and tax to pay, individuals will face significant Penalties and interest.
Firstly if you have sold a UK property in 2018/19, and are concerned this should have been reported to HMRC, it’s important that you seek professional advice as soon as possible and take appropriate action to voluntarily disclose this disposal to HMRC. Volunteering to disclose, ie ahead of HMRC contacting you, will reduce significantly potential penalties and in some cases even eliminate them.
If you receive one of these letters, then again we would recommend you immediately obtain advice from a suitably experienced professional, who can both correctly determine the potential Capital Gain, and importantly help negotiate the potential disclosure/settlement position with HMRC on your behalf.
UK Property Disposals after 6 April 2020
Whilst these HMRC nudge letters are dealing with sales of property made in the tax year 2018/19, it’s probably worth pointing out that since 6 April 2020, all disposals of UK property must be reported to HMRC within 30 days of the sale, even if you regularly file a Self Assessment Tax Return. There are again some exceptions to this rule, but it seems likely that many individuals simply do not appreciate this curent 30 day reporting requirement. If you have already sold a property since April this year, or indeed are considering a sale now, please do contact us for help and advice to ensure you meet all necessary reporting requirements.
We are perfectly placed to help you with any Capital Gains Tax Reporting aspects, and in particular have extensive experience of successfully managing historic disclosures to HMRC.
If you require any more information please contact Lynn Gracie, Natalie Butler or your usual AAB contact.