Our November blog highlighted some of the changes being brought in from April 2020 that will affect individuals selling residential properties. One of those changes relates to how capital gains are to be reported to HMRC and this is likely to bring significant practical challenges.
Currently, UK residents report gains from selling residential property through their self-assessment tax returns. This means that there can be a significant gap between making the disposal and reporting this, and paying the tax, to HMRC. However, from 6 April 2020 a return will be required within 30 days of any disposal of UK residential land resulting in a capital gains tax liability, along with the payment of the tax itself. Penalties and interest may be due where this new deadline is missed so what can be done now to try and ensure compliance with these new rules?
It should be noted that non-residents already have to disclose the disposal of UK residential land within 30 days even if there is no capital gain or tax due and this will not change. This regime has been in place since 2015 and has shown us that perhaps the biggest issue of all is a lack of awareness. Whilst it is not within the remit of a solicitor or estate agent to provide advice on tax, highlighting this change to their clients during the sale process and recommending that they seek advice as appropriate may go a long way to help.
So what else can be done to help ensure that you don’t get caught out by the new requirements? It will be much simpler to ensure the deadline can be met if you have all the information to hand that will be required to calculate the gain.
- Have you got the original acquisition cost and details of any enhancement expenditure?
- If you inherited the property do you have a probate value or will a valuation be needed now to confirm the value? If you need to obtain a valuation for the property when you originally acquired it consider getting these in place now rather than waiting until a future disposal.
- If you have previously occupied the property as your only or main residence, ensure that you have records to show the dates of occupation and details for any other periods of deemed occupation. Remember that from April 2020 changes are being introduced to main residence relief and lettings relief which may mean that a chargeable gain now arises.
- Ensure that you keep records of any other gains/losses arising in the year. If there are multiple disposals in the year or losses have arisen these will need to be taken into account in calculating the estimated tax liability.
The filing of the 30 day return does not replace the self-assessment filing requirements and a return will still be due as normal by 31 January following the end of the tax year. Any adjustments necessary to the estimated tax will be corrected through this process. It remains to be seen how HMRC will approach situations where the actual tax liability as per the self-assessment return differs significantly to the estimated tax paid and it is possible that interest charges and penalties may be levied if the original return contained careless errors.
If you’re considering selling a residential property it is essential that you consider how these changes may affect you. For further information or assistance in calculating your capital gains tax position please contact one of the team at Wells on 01892 507288 or via email email@example.com