Are you looking to sell, or have recently sold a UK residential property, but you aren’t sure how the tax laws apply to you? In this week’s Tax Tuesday, we will be discussing everything you need to know about correctly reporting your property returns to HMRC.
In 2021/22, just under 20% of property returns were reported after the deadline, resulting in financial penalties. If you’ve recently sold a residential property in the UK, it is important that you report the property return to HMRC and pay the associated Capital Gains Tax, to avoid being part of that statistic. You should know though, that you only have to report the property return if CGT is payable. So, if you qualify for Private Residence Relief, or your disposal was to a spouse or civil partner, no report is necessary.
The information in this article applies to UK residents only. If you are a non-resident of the UK, the deadline to report your property disposal is the same, but there are more rules to bare in mind. Non-residents must report the disposal, even if:
- You have no tax to pay
- You have made a loss
- You are registered for Self Assessment.
For more information, check gov.uk for guidance on non-resident Capital Gains Tax return.
What type of properties do I need to pay Captial Gains Tax on?
Capital Gains Tax (CGT) is a tax on the profit when you sell an asset that has increased in value. However, it’s important to note that if your gains in a year are under the tax-free allowance, then you do not need to pay any CGT. At the moment, the tax-free allowance is £12,300, but Chancellor Jeremy Hunt announced in his Autumn Statement that it will be reduced to £6,000 in the 2023/24 tax year, and then reduced further to £3,000 the following year.
Although qualifying for Private Residence Relief can exempt you from having to pay CGT, there are a few property types which you are required to pay CGT for. These include:
- Buy-to-let properties
- Second homes
- Inherited properties
- Business premises
Are there any expenses that I can deduct?
The last thing you want to do is pay more CGT than you need to, so it’s important to know of any deductible expenses. The costs that you can deduct from taxable gains include:
- Stamp Duty paid when buying the property
- Estate agents’ fees
- Solicitors’ fees
- Certain other buying and selling costs
- Costs for improvements to the property
However, you can’t deduct costs for the maintenance of the property or mortgage interest from the taxable gains.
How long do I have to report my property return?
The deadline for reporting the disposal of property was extended on the 27th of October 2021, meaning that you now have 60 days to report the return from the date of completion. For example, if the sale of your property is completed on the 12th of January, you must report your CGT and pay it by the 13th of March. With a deadline so tight, it’s a good idea to keep any relevant documents available throughout the completion of your sale to avoid being caught out at a later date.
Penalties for missing the deadline
As soon as your deadline has passed, strict penalties will begin to accrue. According to gov.uk, if you miss the deadline by one day, you’ll receive a £100 penalty. Missing the deadline by more than six months will mean that you receive a further penalty of £300, or 5% of any tax due (whichever is greater). For missing the deadline longer than 12 months, there is again, a further penalty of £300 or 5% of any tax due (again, whichever is greater of the two).
Before the deadline for reporting property returns was extended to 60 days, 28% of property returns in 2020/21 were reported late. While this statistic has decreased with the extension, you may feel that HMRC does not widely publicise the strict deadline for reporting property returns and paying CGT.
How can we help?
If you still have questions about reporting and any other obligations for your residential property sales, contact our team at email@example.com or call 0161 905 1616.