Date posted: 18th Feb 2020
Lee Watson, tax director at Clive Owen LLP, is warning homeowners not to overlook the impending changes to capital gains tax reporting, which means that sales of residential properties may need to be reported to HMRC within 30 days of completion.
Lee advised: “A capital gains tax charge may arise if, for example, you sell a residential property that has not been your main residence throughout the entire period of ownership. For instance, this could be a buy to let property or perhaps a property that you once lived in, but not for the entire period of ownership.”
Lee added: “As things stand, if you sell a residential property today (February 2020), then you have to report the sale and associated tax charge on a Self-Assessment Tax Return. That Tax Return needs to be filed with HMRC by 31 January 2021 with the capital gains tax paid at the same time. This means you have almost ten months to undertake the calculations and pay the tax.”
However, sales that complete after 6 April 2020 will have to be reported twice. Lee said: “For sales after 6 April 2020, a new standalone capital gains tax return will be required to be submitted to HMRC within 30 days of sale. Not only that, a payment of capital gains tax will be required at the same time. The sale will also have to be reported on a Self-Assessment Tax Return for the appropriate tax year.”
Lee believes this may cause some people to fall foul of HMRC. “The problem I envisage people will face is the actual calculation of the capital gains tax due. They will need to have all of their historic records on hand to calculate the gain or profit on the sale. Not only does that mean that they could be digging around in the loft for purchase documentation, it also means that they will need to locate receipts for costs of any capital alterations to the property such as extensions.
“In addition, valuations may be required depending upon when or how the property was purchased or acquired. In addition to this, as the rate of capital gains tax which applies is dependent on income level, they will need to estimate income for the year to work out the capital gains tax liability.”
There may be penalties for non-compliance too, Lee warns: “As the sale of the property will be reported to the Government on the stamp duty land tax form, it will be aware that there may be a requirement for an individual to submit a capital gains tax return. There are likely to be penalties for non-compliance and late payment of taxes. We have already seen such penalties raised on the late submission of capital gains tax returns for non-UK residents selling UK properties, for whom such a regime has been in place for the last five years.”
Simon Brown from Browns Estate Agency adds: “Landlords looking to dispose of properties would be well advised to take specialist tax advice before embarking on selling their assets, to make sure they are aware any tax liability.
“Hopefully this will not have a significant impact on the positive start to the year for the housing market, although only time will tell.”
If any of the updates in this article raise any issues for you or your business, please contact our Tax team.