As UK business sectors begin to resume pre-pandemic trading, albeit with new safety precautions in place, the new deadlines to file and pay Capital Gains Tax (CGT) are now being enforced.
We've summed up all you need to know to ensure you stay on top of your tax liabilities, and understand the new system to follow when selling a residential property at a profit.
The New Capital Gains Tax Rules on Property
From the start of the 2020-2021 tax year, new rules mean that CGT that arises following the sale of a property must be declared, and paid, within 30 days.
Of course, this new regulation came into effect only a week or two after lockdown had begun, and many taxpayers may have benefited from a postponement as HMRC implemented payment holidays to try and ease the strain of the pandemic.
The way the system works is:
- The agent or vendor must file an online return within 30 days of the sale completing.
- Property sales where both the exchange and completion fall into the current tax year are applicable (i.e. where both stages of the sale occurred on or after 6th April 2020).
- Both the online return and remittance of the CGT payable, are due within the same 30-day deadline.
Before this tax year, the rule only applied to non-UK residents, so it is a new requirement that has been introduced at a most tumultuous time.
Let's clarify what CGT means, when it is payable, and which taxpayers are likely to receive a late submission penalty if they haven't fulfilled their obligations.
CGT Tax Before 2020-2021
UK property sellers have always been required to declare any gains (i.e. profit) made on the sale of an asset. That includes residential property.
The difference is that previously, such gains had to be reported on your annual tax return for the relevant period.
So if the date of disposal was towards the start of a tax year, you would have had a full year until the end of the tax period, and then several more months before your tax return fell due on the next 31st January.
While a real-time CGT system was launched a couple of years ago, this was optional and probably not the best option for taxpayers who wanted to defer the payment due date.
How CGT Has Changed from April 2020
New rules mean that anybody who sells residential property in the UK needs to file a new type of tax return, called a CGT on UK Property Return, and pay the CGT arising, within 30-days of the completion of the sale.
Tax reliefs may be applied to this liability - for example, if the profit earned is beneath the annual exemption, or if you have brought forward losses that cancel out the gain.
In that case, you don't need to file the return, and no CGT is payable.
Filing Requirements for CGT Returns
If you do have a tax liability to pay, you have 30-days to pay that tax. The return can be filed on your behalf by a tax agent, whereas with the optional real-time system you had to submit the return yourself.
However, there is an added complication if you use a tax agent, in that you will need to have been through the agent authorisation process to indicate that they have permission to act on your behalf.
This involves setting up a Government Gateway account and creating a CGT on UK Property Account to file your agent approval.
Penalties for Late CGT Submission
Some taxpayers may find that the 30-day deadline hasn't been enforced, due to tax holidays and upheaval owing to the Coronavirus pandemic.
As things start to return to some sense of normality, those with taxes owing or returns overdue are now required to catch up - and as quickly as possible.
Late submission can result in penalties, such as:
- An automatic late filing penalty of £100 for any returns over 30-days.
- Daily penalties for returns over three months late.
- Fixed £300 penalty when a return falls six months late, and again at nine months late.
Given that the system is new, HMRC has confirmed that late returns that were submitted by 31st July 2020 are exempt from tax penalties.
This allows some breathing space for taxpayers who sold property between the start of the tax year (6th April 2020) and up to 30th June 2020 when the 30-day deadline would take them up to 31st July.
If you have sold a property and made a profit between then and now, and have not yet filed your return or paid the CGT, you will need to explain the reasons for the delay and ensure you get up to date as a matter of urgency.
Calculating Your CGT Payable on Residential Property Sales
Calculating the profit made on a property sale, of course, isn't always straightforward. You can, therefore, use a 'reasonable estimate' to work out what gain you have made, and how much tax you have to pay.
You also need to estimate how much taxable income you expect to earn this year, and check whether the gain made will fall into the basic rate tax band, or tip you into a higher bracket.
Total income matters, because:
- If your total income, including the gain, falls into the basic rate bracket, CGT is payable at 18%.
- If your total income falls into a higher tax bracket, CGT is payable at 28%.
Remember that if you have sold more than one property, you need to take into account profits made on those additional sales too.
CGT When You Have Sold Property At A Loss
Sometimes, you might make a loss rather than a gain when selling a residential property. In this scenario, you can enter the figures on your tax return as usual and don't need to file within the 30 days.
This can get complex; if you would have been required to file a CGT should the sale have generated a profit, you're still obliged to submit a return to be able to claim a repayment if you have already paid CGT on a previous property sale.
It all depends on whether you have made losses or profits in previous years. Losses can be brought forward, so if you then make a profit, you can offset the loss against this to reduce your tax payable.
Likewise, if you've paid or submitted a return to pay CGT on a profit, and then subsequently made a loss, you can claim a refund for the difference.
These intricacies all arise because a 30-day return and payment are mandatory, but then might also change depending on any losses made on future property sales.
Has Capital Gains Tax Changed for Other Asset Sales?
It has not, no - these new regulations only apply to UK residential property. That means if you sell another type of asset and make a profit or a loss, you can continue to include it in your tax return after the end of the tax year in the usual way.
Any payments owing, or refunds due, will then be calculated.
SAS Accounting is a full-service accountancy practice based in Colchester, serving the city and the wider Essex area. If you need any support or advice understanding the new Capital Gains Tax rules or filing a return to ensure you don't fall foul of the 30-day deadline, give us a call, and we'll be happy to help.
Taxes can be complicated, time-consuming, and stressful, and so using a professional team of experienced accountants provides the peace of mind that your affairs are always up to date.