HMRC is making changes to the way taxpayers are required to report and pay tax due on certain property disposals.
From 6 April 2020 the disposal of UK residential property by individuals, trustees, personal representatives or partnerships will need to be reported to HMRC, and any capital gains tax paid, within 30 days of the completion date. This is a significant acceleration of the deadline which has the potential to catch out many taxpayers.
Nothing changes, however, in situations where no tax falls due, either due to the utilisation of available tax reliefs or losses. This will mean that in the majority of cases, those selling their family home will not be caught by these rules as they will avail of Principle Private Residence (PPR) relief. If, however, PPR relief is not available for the full duration of ownership and some tax falls due, a return and payment will be required within 30 days.
It will be necessary to make a ‘best estimate’ of the capital gains tax due based on the information available at the time. The payment will essentially be a ‘payment on account’; a deduction may be taken for the capital gains tax annual exemption and any capital losses available at the date of completion. The final calculation will need to be reviewed at the end of the tax year once full details of taxable income for the tax year, and other gains and losses are available. The return can be amended, but only in respect of matters that occurred before the completion date.
It will be necessary for those who complete ‘Self Assessment’ tax returns, to also include the disposal on their return, deducting the payment already made in determining their overall tax liability for the year. If it transpires that the payment made is incorrect, perhaps because income was higher or lower than anticipated resulting in the applicable rate of tax differing, this will need to be corrected via the ‘Self Assessment’ tax return.
HMRC will charge penalties for late submission and late payment, in line with the normal ‘Self Assessment’ penalty regime. These penalties can mount up very quickly, and it remains to be seen if HMRC will take a lenient approach or enforce all potential penalties.
Prior to 5 April 2020 such disposals for UK resident individuals will not need to be reported or paid until the ‘Self Assessment’ submission deadline of the 31 January, following the end of the tax year of the disposal. Taxpayers, therefore, need to be aware of this change and seek advice from their accountant or tax adviser in a timely manner, ideally prior to the sale, as complex calculations may be required.