Changes to Reporting and Payment of Capital Gains on UK Residential Property Disposals

Applicable to: UK Resident Individuals, trustees and personal representatives

Proposed effective Date: 6 April 2020

The previous government announced significant changes to the reporting and payment of Capital Gains Tax on disposal of UK residential property. We expect the contents of those proposals to be enacted in time for the planned effective start date of 6 April 2020 regardless of which party forms the next government, following the election on 12 December 2019.

The changes announced to date follow:

30 Days to Report and Pay Capital Gains Tax

For exchange of contracts taking place on or after 6 April 2020 HMRC require online reporting and payment of Capital Gains Tax within 30 days of the date of completion on the disposal of UK residential property. Reporting is only required where there is CGT chargeable.

It follows that 30-day reporting is not required where the disposal is on a no-gain/no-loss basis (most commonly between spouses or civil partners). Neither is reporting required where the entire property gain is covered by main residence relief.

The calculation of CGT chargeable ignores later disposals in the same year and disposals that are not subject to 30-day reporting, but allows capital losses realised previous to the disposal in question to be taken into account. Therefore, where there are assets to be disposed of at a loss, the timing should be considered so as to benefit cash-flow where relevant.

The legislation allows for the making of assumptions and reasonable estimates to enable timely reporting (in determining the rate of tax at 18% or 28% for example which requires estimation of the taxable income for the year). However, penalties for non-compliance and late reporting are significant.

Please see below to download our information leaflet on Reporting Capital Gains on UK residential property disposals.

This includes a Guidance Pathway, to help you ascertain if you are required to calculate the amount of CGT chargeable, reporting and making payment to HMRC within 30 days of completion of the disposal of your property.

If you have a rental property that has previously been your main residence the following changes are likely to result in a significant increase in your potential CGT liability. Please get in touch with your usual M+A contact for an urgent review of your position.

Changes to Main Residence Relief

Currently, where a property has been your main residence at some point during your period of ownership, you are entitled to main residence relief in respect of the last 18 months of ownership even if you are not living in the property during that period.  Legislation is scheduled to reduce the final period exemption for main residence relief from 18 months to 9 months and so we expect to see more transactions that are not fully covered by the relief with a consequent increase in CGT payable.

Restriction to Lettings Relief

If you let a property that has previously been your main residence, under current rules you are entitled to claim lettings relief which exempts up to a further £40,000 gain from CGT.  Legislation is scheduled to restrict that relief to circumstances where the property is also occupied by the owner.

HMRC have recently announced that they will be allowing a period of time to adjust to the new legislation and will not be issuing late filing penalties for CGT returns received late, up to and including 31 July 2020. Click here for further details.