Date posted: 13th Feb 2020
Clive Owen LLP is warning individuals not to overlook the impending changes to capital gains tax reporting, which means that sales of residential property may need to be reported to HMRC within 30 days of completion.
A capital gains tax charge may arise if, for example, an individual sells a residential property that has not been their main residence throughout the entire period of ownership. For instance, this could be a buy to let property or perhaps a property that they once lived in, but not for the entire period of ownership.
Currently, if they sell a residential property today, then they 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 process would allow for almost ten months to undertake the calculations and pay the tax.
Henceforth however, sales that complete after 6 April 2020 will have to be reported twice because 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 then have to be reported on a Self-Assessment Tax Return for the appropriate tax year.
I believe that this will be complicated for the unrepresented taxpayer, meaning that they are likely to require professional advice. The issues I envisage people facing are around the actual calculation of the capital gains tax due.
Taxpayers will need to have all of their historic records on hand to calculate the gain or profit on sale. Not only does that mean that they could be digging around in the loft for purchase documentation, but 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 upon income levels, they will need to estimate projected income for the year to work out the capital gains tax liability. This could be complicated for most people and also time consuming.
Finally, there is a likelihood of penalties for non-compliance!
As the sale of any property will be reported to the Government on the stamp duty land tax form, they will also 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 observed penalties raised on the late submission of capital gains tax returns for non-UK residents selling UK properties as, for them, this process has been in place for the last five years.
It may also be worth noting that there is another change in planning. This will reduce the final period of ownership for private residence relief and therefore basically abolish letting relief. This is still to be legislated on so we will share more about this in due course.