As you may be aware, from the 6th April 2020, a new rule was brought in which required any gain on the sale of a UK residential property to be reported and any capital gains tax paid within 30 days. In the Autumn Budget 2021, the Chancellor announced a much-welcomed extension from 30 days to 60 days, which represents a more achievable time scale.
In summary, if you sell a UK residential property and make a chargeable gain, you must report it within the following time frames:
- Within 60 days of selling the property if the completion date was on or after 27th October 2021.
- Within 30 days of selling the property if the completion date was between the 6th April 2020 and 26th October 2021.
What is Capital Gains Tax?
Capital Gains Tax is the tax you pay on the profit made when you sell an asset that has increased in value. This could be property, shares, business assets, or personal possessions worth £6,000 or more (subject to certain exemptions). The tax you pay is only on the profit made, not the entire proceeds received.
You also only have to start paying Capital Gains Tax once the total profits exceed your annual tax-free allowance of £12,300 (or £6,150 for trusts). The tax year runs from April 6th to April 5th the following year.
However, you do still have to report your gains on your tax return if you are registered for Self Assessment and the total proceeds from the sale (not just the profit) come to more than four times the amount of your tax-free allowance, so £49,200 for an individual.
Capital Gains Tax 60-day reporting rule
When you sell a residential property that you make a profit on in the UK (excluding your main home), you must now report and pay the Capital Gains Tax due within 60 days of the sale. This includes buy-to-let properties, inherited properties and land. Failure to do so may result in a penalty and/or interest payments. It would normally exclude your own home unless, for example, you have not lived in it for your entire period of ownership.
To report your Capital Gains on a residential property, you will need to create a Capital Gains Tax on UK property account on the UK government’s website, where you can then report your Capital Gain.
You will need details of how much the property was purchased and sold for, the dates you purchased and sold the property, and any other relevant information such as the buying/selling costs and also the costs of any improvements carried out while the property was owned.
If you are not a UK resident and you sell a UK property or land, whether it is residential or not, the sale must still be recorded within 60 days (even if you do not owe any Capital Gains Tax).
Working out your taxable gains
Work out the profit from the sale of the property, as well as the gains from any other assets you’ve disposed of in the same tax year, to work out whether you have exceeded your tax-free allowance.
You can also report losses on a chargeable asset to reduce your total taxable gains. You can claim for these losses up to four years after the end of the tax year that the asset was disposed of.
The amount of tax you will have to pay on the sale of your property depends on your income. If you are a higher or additional rate taxpayer, you will owe 28% on your gains from a residential property (and 20% on gains from all other chargeable assets).
If you are a basic rate taxpayer, you must first work out whether your taxable income plus your total taxable gains (minus your tax-free allowance) is within the basic income tax band. If it is, then you will owe 18% on your gains from the residential property (and 10% on the profits from all other taxable assets). If it is higher, then you will pay 28% on the residential property gains (and 20% on all other asset gains) on the amount above the threshold. Hopefully you now better understand the Capital Gains Tax 60-day reporting rule as it pertains to residential properties. If you need any further tax advice, please get in touch with us.