Disposals of UK residential property by UK residents

Currently, UK residents have until 31 January following the tax year of sale to disclose and pay any CGT to HMRC (between 10 and 22 months from the date of sale). The new rules will therefore accelerate the payment of CGT in those cases, by way of a ‘payment on account’ as well as creating a further reporting requirement for the taxpayer.

A similar regime is already in place for non-UK residents who dispose of any UK property or ‘property rich’ company – whether it be residential or commercial. See our recent article on Non Resident Capital Gains Tax (NRCGT) for further details.

The new rules will only affect UK residents who dispose of UK residential properties. Commercial properties sold by UK residents will remain under the existing regime.

I will have a taxable gain to report after 6 April 2020, what do I need to do?

If you have a taxable gain to report, you must do the following within 30 days of completion:

• calculate the gain made on the sale of UK residential property (using estimates if necessary)
• report the gain to HMRC
• make a payment of CGT to HMRC (CGT rates for residential property are currently 18% or 28% depending on income levels).

After the end of the tax year, the property gain should be disclosed on the annual self-assessment tax return as before. Once your full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and payment already made will be deducted. This could result in an over or underpayment. 

If you have no gain to report or the gain is covered by exemptions or losses, you will not have to complete a property disposal return within 30 days.

For example, if you are selling a property that has been your only or main residence for the entire period of ownership, you will not need to prepare a return within 30 days as any gain would be covered by Private Residence Relief (PRR). 

The new rules will mainly affect UK residents with second homes, landlords looking to sell their residential property lets or those who are selling a property which has not always been their main residence.

One thing to bear in mind is that the above changes coincide with the removal of lettings relief and the reduction in the final period that qualifies for PRR. This could mean that some people who thought they could sell tax-free may not be able to do so under the new rules – please see our recent article on PRR for further details.

Actions to take

If you are in the process of selling a chargeable property, you may wish to accelerate the sale where possible so that you have additional time to pay any tax. Please note that the date of sale for CGT is the date contracts are exchanged, not the date of completion. This may offer an opportunity to bring the sale forward so it is not affected by the rule change even if completion happens after.

Any tax payable on a property that is sold on or before 5 April 2020 will be due for payment no later than 31 January 2021, however where a property is sold on or after 6 April 2020 payment will be due no later than 30 days after completion. There is therefore a significant cash flow advantage to bringing sales forward.

To discuss how the changes impact you, and what your options are going forward please contact your usual Crowe contact.