Selling your property? Important tax changes you need to know

From the 6th April 2020 HMRC introduced new reporting requirements for UK tax residents who dispose of a UK residential property. This article covers the key changes sellers need to know about.

On 8 July, the Chancellor Rushi Sunak temporarily increased the threshold at which house buyers pay stamp duty to £500,000 – effectively giving a stamp duty holiday to many. This is of course welcome news to all house purchasers and is set to kick start the housing market which has been virtually stagnant since lockdown commenced back in March.

Prior to the announcement of this holiday Knight Frank and Savills were placing estimates of the volume of sales this year being down by over 400,000 from last year’s 1.2 million.

What has not been widely publicised however is a change in HMRC’s reporting requirements for the seller, which were introduced in April 2020.

Changes for the seller

From the 6th April 2020 HMRC required all UK tax residents (individuals, trusts, personal representatives) to complete and file a capital gains tax return on the disposal (sale, gift or transfer) of a UK residential property which gives rise to a chargeable gain, on which tax is payable, within 30 days of completion. Any tax due on the disposal must also be paid to HMRC in this time. Failure to meet the 30 day deadline will result in penalties, and interest being incurred.

In circumstances where contracts were exchanged and legally binding before the 6th of April 2020, but completion took place after this date, a return will not be needed.

For disposals which have taken place between the 6th April 2020 and the 30th June 2020, HMRC have introduced a concession whereby providing the capital gains tax return is filed and any tax due paid by 31 July, no penalty will arise, however interest charges may still be incurred.

A disposal for these purposes includes sales, gifts or transfers.

For non-UK tax residents, similar requirements to complete a Capital Gains tax return on the sale of residential UK property were introduced In 2015. In 2019 these requirements were extended to include land and non- residential property disposals.

It is important to note that the capital gains tax return is in addition to a self-assessment tax return. Therefore, if you are within self-assessment you are not exempt from the requirement to complete a capital gains tax return and may indeed end up reporting a disposal twice.

The return must be filed online through a ‘Capital Gains Tax on UK property’ account. This itself takes time to set up as it requires a login and ID to be obtained from HMRC and is separate to the self-assessment system.

Many UK property disposals will not give rise to a chargeable gain on which tax is due and therefore will not require a capital gains tax return to be completed.  These include

  1. Disposals which qualify in full for private residence relief
  2. Transfers between spouses/civil partners
  3. Disposals where the gain will be covered by the annual exemption
  4. Disposals where a loss arises

Common misconception – the family home

A common misconception is that a property which is an individual’s main residence will not give rise to a chargeable gain. You can only be sure this is the case if all the following criteria is met:

  1. This is your only property
  2. You have always lived in the property as your main home
  3. Have no periods of absence during your ownership of the property
  4. Have not used the property for business
  5. The grounds including the house/buildings is less than 1.2 acres (1/2 hectare)
  6. The conditions for private residence relief are met in full

Given the short time frame for completing and filing the capital gains tax return after completion, it is important to establish at the earliest opportunity whether a chargeable gain which needs reporting will arise.

Our recommendation is that whenever you are thinking or selling, gifting or disposing of a UK property (even if it is your main home) that you speak to your accountant/tax advisor to check the position.

Alternatively, you can get in touch and speak directly to one of our Tax Specialists today on 01933 510 022 or email Jo.Surley@mpa.co.uk

 

Jo Surley
Author:
Jo Surley Head of Tax