Pictured above: James R Rose MMath(Hons) FCA CTA
If you have recently sold a property, or are planning to, then you may need to take urgent action if there is Capital Gains Tax (CGT) to pay.
What are the rules?
Where the disposal of a UK residential property results in a gain on which CGT is payable, this must be reported to HM Revenue & Customs (HMRC) within 60 days following the date of completion, and the tax due must be paid over by the same date.
As you will appreciate, 60 days is not long to consider the position, prepare any necessary computations, report the gain to HMRC and pay the tax liability arising. If the deadline for filing the CGT UK Property Return is missed, an automatic £100 penalty can be charged with potential further penalties of £10 per day if the Return is still outstanding after three months. Additional penalties and interest may also apply for failure to make the CGT payment on time.
Who do these rules apply to?
UK resident individuals, trustees, personal representatives, partners in a partnership and joint owners of property are all within the scope of the 60-day CGT rules.
There are slightly different 60-day reporting rules for non-UK residents, covering both residential and non-residential property disposals, but these are beyond the scope of this article.
What disposals are caught?
The 60-day reporting regime catches any disposals of UK residential properties that result in a gain on which CGT is payable. Therefore, disposals of overseas residential properties are not caught (although there will almost certainly be requirements in the overseas jurisdiction and the disposal still needs to be reported on your UK Self-Assessment Tax Return). 60-day Returns are not required for UK residential property disposals that result in a loss or which do not give rise to a CGT charge e.g. because the gain is covered by the CGT Annual Exemption (currently £3,000 per individual for the current tax year), any capital losses brought forward, or a particular relief (e.g. principal private residence relief).
The main disposals which are caught are therefore those of a UK second home, a property you have never lived in (or only lived in for part of the ownership period), a UK let property (whether or not you lived in that property at some point) or an inherited property sold for more than its probate valuation.
It is important to understand that the rules do not just apply to sales of property, they apply equally if you were to gift a property (e.g. to an adult child) even though you may not have received any money in exchange. This is an area which is frequently overlooked. No CGT arises on gifts between spouses or civil partners, however.
Finally, bear in mind that capital losses brought forward from earlier years or made in the same year as the gain (but prior to the date of sale) can be offset if desired. You may want to give some thought as to whether any capital losses can be realised prior to the sale of the property, in order to reduce the CGT payable after 60 days of completion.
The above is for general guidance only and no action should be taken without obtaining specific advice.
If you are looking to trim your tax, it pays to get professional advice.
At Pearson May we specialise in a full range of accountancy services to help you maximise your profits and minimise the tax you have to pay.
Call Bath 01225 460491
or visit pearsonmay.co.uk
