Currently, capital gains on the sale of residential property in the UK are reported on the self-assessment tax return and the total capital gains tax liability for the tax year is payable by 31 January after the end of the tax year. Thus, the capital gains tax on residential property gains arising in the 2019/20 tax year must be reported to HMRC on the 2019/20 self-assessment return by 31 January 2021 and the associated capital gains tax paid by the same date.
However, from 6 April 2020 this will change. From that date, gains arising on disposals of residential property by UK residents must be notified to HMRC with 30 days of the completion date, and a payment on account of the eventual tax liability made by the same date.
What disposals are affected?
The new rules will apply from 6 April 2020 to disposals by UK residents of UK residential property which give rise to a residential property gain. The rules applied to disposals by non-residents from April 2019.
A new return
Rather than notifying HMRC of the gain on the self-assessment return, there will be a new return for advising HMRC where a gain arises on the disposal of a residential property. If there is no taxable gain, for example if the property is disposed of to a spouse or civil partner on a no gain/no loss basis, there is no requirement to make a return.
The return must be submitted to HMRC within 30 days from the date of completion.
Payment on account of tax due
The taxpayer must also make a payment on account of the capital gains tax liability within 30 days of the completion date. This is considerably earlier than now, where the lag is at least nine plus months and may be as much as almost 22 months.
Amount to pay
The amount to pay is effectively the best estimate of the capital gains tax at the time of the disposal, taking into account disposals to date in the tax year.
Paul sells a second home, completing on 31 May 2020 realising a gain of £50,000. He has made no other disposals in 2020/21 at the time that the property is sold.
He can take into account his annual exempt amount (for purposes of illustration this is assumed to be £12,000 for 2020/21) when working out his liability. Paul is a higher rate taxpayer.
The payment on account is therefore £10,640 ((£50,000 - £12,000) @ 28%).
Where a capital loss has been realised before the residential property gain, this can be taken into account when calculating the payment on account.
The return must be filed and the payment on account made by 30 June 2020.
Rebecca sells her city flat, which is a second property, on 1 August 2020, realising a gain of £100,000. In May 2020, she sold some shares, realising a loss of £10,000. Rebecca is a higher rate taxpayer.
The loss can be set against the residential property gains of £100,000, leaving a net gain of £90,000. As her annual exemption is available, the chargeable gain is £78,000 and the payment on account is £21,840.
No account is taken of a loss realised after the residential gain.
Final capital gains tax liability for the year
The final capital gains tax liability for the year is computed via the self-assessment return taking into account all gains and losses for the year. The payment on account is deducted from the final bill and the balance payable by 31 January after the end of the tax year.
If the payment on account is more than the final liability, for example if losses were realised later in the tax year, a refund can be claimed once the self-assessment return has been submitted.
Partner note: FA 2019, s. 14 and Sch. 2.