Reporting on the disposal of UK residential property
In recent years, HMRC has introduced a number of changes to the way in which the disposal of UK residential property is dealt with for tax purposes.
Starting with the introduction of the Non Resident Capital Gains Tax (NRCGT) regime from 6th April 2015, which initially covered disposals of UK residential property by non-UK residents but was extended to cover disposals of interests in UK land and indirect disposals from 6th April 2019, HMRC have recently moved their attention onto gains realised by UK residents on UK residential property.
Prior to 6th April 2020, disposals of residential property by UK resident individuals and Trustees were reported as part of the regular Self-Assessment Tax Return process with any tax arising being due by 31st January following the tax year in which the disposal took place.
From 6th April 2020, gains on disposals of UK residential properties are now also required to be reported within 30 days of the settlement date (Scotland) or completion date (rest of the UK) and the tax paid within that period. It should be noted that this date differs from the regular tax point, which is the date of the completion of missives/exchange of contracts. In order to report the gain, a standalone Capital Gains Tax (CGT) Return is required to be prepared and submitted.
The CGT Return is considered an ‘Information Return’, and should be as accurate as possible based on the information available at the time; including the appropriate rate of tax. The taxpayer therefore must make a reasonable estimate of their tax liability and this will be the amount payable. Gains on other assets should be ignored for the purpose of arriving at the estimated tax payable.
Following the end of the tax year in question, the position will be finalised through the completion of the usual Self-Assessment Tax Return.
The new rules will apply to (although not limited to):
- Sales of residential property
- Transfers of residential property to a connected person (other than spouse), Trusts etc.
Residential Properties that form part of a larger sale of land will also fall within the scope of the reporting requirements. This will be calculated on a just and reasonable basis, with the residential element being reported on a CGT Return, and the remaining disposal being reported as normal via the Self-Assessment Tax Return.
The new rules for UK residents specifically will not apply to:
- Disposals made by a company,
- Disposals made by a charity,
- Disposals made at no gain no loss (e.g transfer to UK based spouses),
- Grant of a lease for no premium to a person not connected with the grantor under a bargain made at arm’s length,
- Disposals of pension scheme investments.
Furthermore, if missives are concluded/contracts exchanged prior to 6th April 2020 and the settlement/completion is not complete until after 6th April 2020, this will be considered a disposal in the 2019/20 tax year and a standalone CGT Return will not be required.
Unlike the NRCGT rules, a CGT Return is only required where there is a gain resulting in tax being due. A CGT Return will not be necessary where a gain is covered by allowances or reliefs (for example the annual exemption, or private residence relief).
Where the annual Self-Assessment Tax Return is submitted prior to the filing deadline of the CGT return, a CGT Return is not required and the Tax Return is sufficient. However, if the tax that would have been due on the CGT return is higher, then there will be a requirement to complete the CGT Return in addition to the Self-Assessment Tax Return.
Private Residence Relief Changes
Private Residence Relief (PRR) is available to individuals (and in some instances, trustees) on the disposal of their main residence and effectively exempts gains from Capital Gains Tax that are attributable to periods that the property was used as the individual’s (or beneficiary of a trust’s) main residence and for the final period of ownership.
Up to 5th April 2020, the final 18 months of ownership (regardless of whether the individual/beneficiary continues to occupy the property up until the time of disposal) is also allowable. From 6th April 2020 this period has been reduced to the final 9 months of ownership.
A further significant change made is to the availability of Lettings Relief, which has historically been available where the property was the private residence of the seller at any time during the period of ownership and has been let. Previously, an additional deduction for CGT was allowable for that period at the lower of:
- The Private Residence Relief claimed;
- The chargeable gain attributable to the period of letting; and
From 6th April 2020, Lettings Relief will be limited to periods where the property has also been occupied by the owner of the property whilst being let.
If you are in the process of or considering selling residential property and are unsure of whether the transaction will be affected by the new rules, please do not hesitate to contact your usual Turcan Connell. Alternatively, please email us at firstname.lastname@example.org