60-Day Residential Property Reporting – Are You Aware?
Three years ago, the Government introduced additional reporting requirements in connection with the disposal of a UK residential property (i.e. over and above your Self-Assessment Tax Return). The form these obligations take differs based on your residency status and, for the purpose of this article, we concentrate on the position for those individuals who are resident in the UK.
From 6 April 2020 onwards, the disposal of a UK residential property must be reported on a Capital Gains Tax (‘CGT’) UK property disposal return (‘CGT return’), together with payment of any CGT due on the disposal. The deadline for both is 60 days following the date of disposal. This is usually determined by the completion date (broadly being the date the property or money changes hands).
What constitutes a disposal?
A disposal includes sales, gifts or transfers of property (that you have not always occupied as your main home), holiday homes, property you have let out, property you inherited and have not always occupied as your main home or land that once formed part of the garden of a house.
Residential property can include a building suitable for use as a dwelling and also land that includes a building which is currently being built or converted for use as a dwelling.
A CGT return is not required where there is no CGT payable, e.g. where the property has always been considered your main residence for tax purposes, the sale or gift was to your spouse or civil partner, the gains are within your capital gains annual exemption (£6,000 for 2023/24) and you have made no other chargeable disposals in the tax year, the gain is covered by brought forward capital losses, you sold the property at a loss or the property is outside the UK.
CGT is only charged on the gain made, not on how much you sell the property for. Certain costs relating to the purchase and sale of the property can be included to reduce the gain (e.g. LBTT, estate agent fees). It may also be possible to claim for certain improvements made to the property. Other reliefs may be available where the property has been your main residence at some point or where it has been used for short-term lets.
The CGT reporting requirements will not affect the gain on sale of your main residence, which remains exempt if you occupied the property as your main residence throughout your full period of ownership.
Taxpayer awareness and HMRC approach
Awareness of the rules still seems to be lacking with 20% of buy-to-let investors and second homeowners reported to have failed to pay their bill on time last year. After initially waiving penalties, HMRC are now pursuing those who have not filed a CGT return and imposing penalties for those who file late. In addition, HMRC recovered £33M in unpaid tax on rental income last year (plus £2M in penalties) from landlords as they reprioritise their activities post-covid indicating it is an area where they consider non-compliance is an issue.
We are assisting a significant number of clients to report the sales of their buy-to-let properties, with many deciding to sell following the Government’s continued eroding of the tax reliefs and exemptions available to them (e.g. mortgage interest relief and annual exemption amount). Over and above the various technical aspects of reporting a gain accurately, there are challenges associated with the HMRC’s reporting system, such as difficulties setting up a CGT account and the interaction with Self-Assessment.
Contact us today to discuss your property disposal and we can assist you with making the process as seamless as possible.
Keith Hunter is a Senior Tax Manager at Thomson Cooper. Although Keith is based in our Dunfermline office he also serves clients across Edinburgh and the Lothians having worked in Edinburgh for a number of years. He helps clients with all aspects of their personal tax planning requirements.