Since April 2020 there have been two phases of changes to the tax paid on residential property sales. The idea is to increase the tax paid from the disposal of residential property and collect this tax much more quickly.
For personal taxpayer capital gains tax (CGT) is paid between 10 months and 22 months after the date of the sale of the property. This will be brought forward to 30 days, which is predicted to give an additional tax yield of between £5 billion and £8 billion annually.
This change has been implemented from 6 April 2020 and basically takes out the initial computation of gain from the self assessment system and make it a standalone report and payment. Self assessment taxpayers will, however, still need to report the gain on tax returns.
The sales affected include:
- Any direct or indirect disposal os land which meets the non-residence condition which occurs on or after April 2019.
- Any other direct disposal of UK land on which a residential property gain accrues and is made on or after April 2020.
Non-residential sales have been subject to a reporting system since CGT became chargeable on residential property sales by non-residents in 2015. The Finance Act 2019 brings all other disposals of UK property of any type within the charge to CGT from April 2019. The change affecting UK resident sellers is the second part of the legislation.
A return must be made within 30 days of the date of disposal (completion date). No returns are needed for no gain/no loss disposals and for disposals where no tax is due. The return must include information to be specified separately and a declaration by the person making it that the return is to the best of their knowledge correct and complete.
The returns can be altered in respect of events that had already occurred at the date the return was delivered. The usual 12 month period is allowed for amending the return.
Enquiries into returns are covered by the normal enquiry rules. If a self assessment return is subject to an enquiry, any returns made under this legislation in relation to gains shown on that return are are also considered to be under enquiry.
Tax must be calculated and paid on the disposal, ignoring any other CGT disposals which are not subject to these rules. The tax is due on the date that the return is due – 30 days after the disposal. This tax is referred to as an amount notionally due and the amount paid is referred to as a payment on account of the CGT for the year.
Available capital losses can be offset. Where there is more than one disposal in a year the tax is calculated on the second disposal, with the first disposal taken into account and deducted from the tax paid at that time from the amount to be paid. So, the cumulative amount of CGT due is calculated each time a disposal is made an the net tax due or overpaid is due for payment or refund.
Paul sold his buy to let property in June 2020 realising a gain of £40,000. Paul expects to be a higher rate taxpayer in 2020/21. The tax calculated on the gain is £7,840 (this assumes that the annual exempt amount in 2020/21 remains £12,000). This tax was paid as required within 30 days of completion of the sale.
Paul sold some shares in August 2020, incurring a capital loss of £30,000. As a result, Paul has no CGT liability for the 2020/21 tax year but will be unable to claim the refund of £7,840 until he submits his self assessment return after 5 April 2021. This is because an amendment of his property disposal return is not possible as the loss was not a condition existing at the time of the property disposal.
Am I Liable for CGT in This Instance?
Many property sales will not be liable for this tax, particularly is it was the main residence of the owners. But, absence working abroad or in the UK, divorce, separation or other family issues can affect the entitlement to relief.
We can assume that anyone selling a buy-to-let property will be liable for tax. We urge you to contact us in order to ensure funds can be reserved from the proceeds of the sale so you are in a position to be able to pay the tax.
If you have any doubts about this or need to speak to Vincent & Co please call 01803 500 500 and we can have a detailed, confidential discussion.