On 6 April 2020, the rules changed with regards to residential capital gains compared to gains on other chargeable assets. If you have a property such as a second home or a buy-to-let property, any gain that arises from this sale will be liable for Capital Gains Tax (CGT).
This is different to the sale of your main residence. If you sell your main residence, providing certain conditions are met, there will be some private residence relief.
HOW DO I REPORT THE GAIN?
When a residential property gain is not covered by private residence relief, it must now be reported to HMRC within 30 days from the date of completion.
It’s simple to do. You just need to be set up for Capital Gains Tax on a UK property account via the Gov.uk website. You must then use this website to report the gain.
In circumstances where the gain is reported via self-assessment before the end of the 30 day period, the gain does not need to be reported via the online service.
If you fail to report the gain within the 30-day limit, you’ll be liable fora £100 penalty.
HOW DO I PAY THE TAX?
A payment on account is due to HMRC within 30 days of completion for the tax on the gain. This is the best estimate of the CGT due at that point in time.
The following should be taken into account when calculating the amount due:
- the annual exempt amount (unless already used on a previous property gain in the same tax year)
- any losses realised prior to completion (unless already utilised on a previous capital gain)
- the likely rate of tax – this will be 18% if total taxable income and gains for the year are less than the basic rate band and 28% to the extent that they exceed this. The gain is treated as the top slice when working out which tax band it falls into.
This payment can be made online via your Capital Gains Tax on UK property account. If you fail to make the payment within the 30-day period, you’ll be charged interest.
Throughout the year, there may be further gains on disposals to take into consideration. This will affect the overall CGT position. When your Self-Assessment Tax return is due, if other disposals are made within the year, your position will be recalculated. If there is any additional tax due, this must be paid via the Capital Gains Tax due date of 31 January.
In circumstances where there is an overestimation for CGT in respect of property gains, a repayment of excess will be made. This can happen if, for example, a loss is made on shares following the disposal of the property.
So, there you have it. If you’re thinking of selling your second home or investment property, make sure that you are working out the gain, reporting and paying HMRC within 30 days of the completion date.
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