QUESION: I am in the process of selling a residential investment property that I have owned for 15 years. I am aware of a new reporting obligation to HMRC but was there a change in the recent Budget?
ANSWER: The Autumn Budget brought some good news for UK resident individuals who dispose of UK residential property and who are required to deliver a Capital Gains Tax (CGT) return to HMRC and make a payment on account of CGT now within 60 days (instead of the previous 30 days) of completion of the property disposal.
Broadly, this only applies where the property disposal gives rise to a CGT liability and as such usually excludes the disposal of a property to which private residence relief applies.
For non-UK residents disposing of any type of property in the UK, whether directly or indirectly owned, the deadline also increases from 30 days to 60 days.
In both cases, for disposals that complete on or after October 27 2021, the reporting and payment deadline was extended to 60 days following the completion of the disposal.
From the same date, changes will clarify that for UK residents disposing of a mixed use property, only the portion of the gain that is the residential property gain is required to be reported and paid.
Previously and from April 6 2020, HMRC introduced radical changes to the disposals of UK residential properties. Individuals (including trustees and personal representatives),had 30 days to report and make a payment on account of any CGT due to HMRC.
This was a huge change considering the disposal would have previously been declared solely on the tax return which could have been up to 22 months after the date of completion.
This change only applies to UK residential property. Here are some examples of the types of property impacted:
• UK holiday homes
• Buy-to-lets
• Furnished holiday lets
• Farm cottages
• Rental properties (where you have not occupied the property for full period of ownership)
• Private residences (where you have not occupied the property for full period of ownership)
Any disposal not giving rise to a CGT liability gain, i.e. the sale of a property covered by Principal Private Residence relief in full, or within the annual exemption, will not need to be reported under this new reporting system.
You only have to pay CGT on gains that exceed your annual allowance. The tax-free allowance is currently £12,300 per person for tax year 2021-22. This means your property can increase by this amount before any CGT will be payable on the sale. Any amount above this will incur CGT tax.
If you’re a higher-rate taxpayer, working out the CGT can be quite simple for the sale of a residential property. Just subtract your CGT allowance from your gain, and your tax liability will be 28 per cent of the remainder.
If you’re a basic-rate taxpayer, it’s a bit trickier. You’ll need to work out if your capital gain minus your allowance will lift your income into the higher-rate band. Everything above the band will be taxed at 28 per cent, while everything below it will be taxed at 20 per cent.
There are a number of additional factors that need to be considered when dealing with these rules, including the interaction of capital losses and the need for valuations.
One area that has been an issue for many taxpayers has been the initial process to obtain a CGT reference number. A return cannot be filed, and an agent cannot be authorised to assist with this matter until the reference is issued. The reference must be obtained by the taxpayer online and there are several steps in the process.
Since the new reporting rules were brought in from April 2020, many taxpayers have got a shock with HMRC issuing penalties for missing the 30 day deadline.
Now that this has been extended to 60 days, it is imperative that persons disposing of property are aware of the 60 day reporting deadline and make the necessary arrangements with their accountants and solicitors to gather the relevant details to make the CGT return and pay the tax.
:: Feargal McCormack (f.mccormack@pkffpm.com) is managing director of PKF-FPM Accountants (www.pkffpm.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
