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CGT - 30 Day Payment Deadline now in effect for some residential property transactions

On 6 April 2020, new rules concerning the payment of Capital Gains Tax (CGT) on some residential property transactions came into effect.  While HM Revenue and Customs (HMRC) has offered some flexibility in light of the Covid- 19 outbreak, property owners should not overlook their obligations.

What is Capital Gains Tax?

Capital Gains Tax (“CGT”) is a tax charged when certain assets, including residential properties, are sold at a profit, or are given away having gone up in value. In most cases, private homeowners selling their main home do not pay CGT because any profit is covered by the “Principal Private Residence” exemption, but where investment properties or second homes are sold, or given away, CGT is likely to apply if the value of the property has increased since the property was acquired.

For the tax year 2020/21, profits of up to £12,300 can be made by individuals and up to £6,150 for Trusts free of CGT, but where profits exceed these levels, tax at rates between 10% and 28% can apply, depending on the type of asset involved and the seller’s income levels.  Disposals made by Trusts will almost always be subject to the higher 28% rate.

What has changed?

Before 6 April 2020, CGT due by UK resident individuals and Trusts could be reported on the annual self-assessment return, with tax payable by 31 January following the end of the tax year in which the gain was made.  After 6 April, where residential property is sold or given away, sellers and transferors only have 30 days from the date of completion of the transaction to report any gains arising from the disposal to HM Revenue and Customs (HMRC) and to pay the associated CGT. 

Late payment penalties will apply where any tax liability is not reported and paid on time. 

Where any overpayment of CGT has been made, a refund will be due by HMRC.  It is, however, anticipated that this refund will not be made available until after the self-assessment return is submitted following the end of the tax year.  It should therefore be remembered that where a taxpayer is ordinarily required to submit a self-assessment tax return, gains made and tax paid within 30 days should still be reported on the return as normal, so that any refund can be properly calculated and repaid. 

How do I pay?

In light of the tight timescale, HMRC has provided an online portal to allow taxpayers to report and pay tax directly to HMRC.  Tax agents will still be able to prepare the return on behalf of clients, but will need to be electronically authorised to do so and payment will still need to be made by the client directly to HMRC.

Recent guidance issued by HMRC has confirmed that where as a result of the Covid 19 outbreak taxpayers need more time to pay, they can contact HMRC to request an extension on a case by case basis.

Are there any exemptions?

Normal exemptions continue to apply, such that where no tax is payable, there is no requirement to submit a report.  As such, in the majority of cases there will be no requirement to report gains made on the sale or gift of your own home. 

There will also be no requirement to report should a property realise a loss rather than a profit.  Similarly, where a property has not risen in value between the date of acquisition and the date of disposal, no report is needed.   Care should however be taken to ensure that there is some basis for this view and in some cases (particularly where properties are gifted rather than sold) it may be necessary to seek a professional valuation.

Transfers of properties between spouses and civil partners, being exempt from CGT, will also not require to be reported.

For further advice, please contact a member of the Private Client team.

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