New UK Capital Gains Tax Regime for individuals from 6 April 2020
There is a new, and somewhat radical, regime now introduced for the reporting of capital gains realised on UK residential property, which applies to both resident and non-resident taxpayers for property disposals where the contract has been signed and exchanged from 6 April 2020 onwards. All such trasactions must be reported to HMRC via a new Digital Services platform, going by the rather unweildy name of the Capital Gains Tax on UK Property Service.
Where contracts have been signed before 6 April 2020, but completion of the sale takes place in 2020/21 tax year, then the old reporting rules will apply. This means for non-residents, the old NRCGT (Non Resident Capital Gains Tax) return is due within 30 days of completion of the transaction and, for residents, any gain is reported on the annual Self-Assessment tax return. Many property transactions have been delayed due to the COVID-19 outbreak, so any sales with contracts exchanged pre 6 April 2020 will still be reported under these old provisions.
Reporting and payment date of Capital Gains Tax
The payment date of capital gains tax for those transactions executed during the year to 5 April 2020, even if completion is in the 2020/21 tax year, remains on or before 31 January 2021, which is also the filing deadline for the Self-Assessment tax return for the year ended 5 April 2020.
The new regime brings the reporting and the payment date forward and so, if an individual sells a residential property in the UK, the relevant date is now a mere 30 days from the completion date of the sale. For these purposes, the completion date is the date on which legal title passes from the vendor to the purchaser.
The new regime, in effect, may require two stages of reporting:
- the digital reporting and payment of the tax within 30 days for all taxpayers, and
- for those taxpayers in Self-Assessment, the same transaction must also be declared on their Self-Assessment tax return for the year of the disposal
It is possible to report and pay the capital gains tax due within the 30 day window without the need to register for Self-Assessment. However, individuals will need to access the digital services via their Online Services Account.
The reporting element of these new rules requires the taxpayer to have prepared a tax calculation to arrive at his best possible estimate of the capital gains tax due. This can be complicated! Whilst all the reliefs and allowances available can be taken into account to arrive at the taxable capital gain, the rate of capital gains tax applicable will be determined by the individual’s marginal rate of income tax for the particular tax year. This means he/she must estimate their total income to establish whether the capital gain is taxable at 18% or 28% or even a mixture of these rates!
If a tax advisor is engaged to prepare the calculation and the reporting of the gain, the individual must still access their Online Services Account and set up a Capital Gains Tax (CGT) Account. The individual must then provide the CGT Account reference number to their advisor. This CGT Account reference number will also be used when making the payment of the capital gains tax due. It is certainly worth setting up a Government Gateway Account to access the HMRC Online Services at the time that the property is initially placed on the market, if one is not yet operational. This will avoid any potential delays when it comes to the reporting and paying the capital gains tax.
If estimates are used in the calculation submitted via the digital service then revisions can be made at a later date, either via the digital service or on the individual’s Self-Assessment tax return.
Failure to report the capital gain on a timely basis and pay the tax by the new due date (30 days after completion), will result in penalties being incurred and interest being charged on the tax from the due date to the payment date.
However, due to the COVID-19 situation, HMRC has announced that it will relax the late filing penalty up to 31 July 2020 so this impacts any transaction where both exchange of contract and completion took place between 6 April 2020 and 30 June 2020. Transactions completed in July 2020 will incur a late filing penalty if not reported with the usual 30 days.
It is worth noting that interest will still accrue if the tax is unpaid after the normal 30 days so we would urge any individuals with capital gains to report, still to proceed with getting the calculations prepared in order to establish the tax that will be due and pay this to HMRC. Otherwise, a potentially hefty interest charge will be accruing at HMRC’s current interest rate of 2.6%.
Not all property transactions will need to be reported. Broadly, if no tax is due on the transaction, then there is no requirement to report. Typically, this might include the following scenarios:
- Sale of a main residence provided it has been so used for the entire period of ownership
- Transfers of property between spouses and civil partners
- The gain is covered by the Annual Capital Gains Tax Allowance
- Losses (provided previously notified to HMRC) are offset so no capital gains tax is payable
If you require further advice on the new regime or assistance to calculate and report a residential capital gain, then please email [email protected]