Residential property taxation – in-year capital gains tax returns

Feb 8, 2022 | Tax Tuesday, Taxation

In recent years, various tax changes have been introduced which target residential property owners, particularly those with second homes and/or personally owned property rental businesses.

The various measures introduced have served to increase tax rates applicable to capital values on purchase and capital gains on sale of residential property.

Restrictions to relief on loan interest have also, in many cases, meant higher liabilities on income generated from rental profits.

In this week’s Tax Tuesday, we look at a measure which helps HMRC collect tax due on property transactions quicker than had been the case previously.

From 6 April 2020, individuals, trustees and personal representatives selling a UK residential property and making a gain on which tax is due had to make a return of the gain and pay the resultant capital gains tax (CGT) within 30 days of completion.

Fortunately, in the budget last autumn, the very tight 30-day deadline was doubled to 60 days.

The new extended deadline applies to all UK residential property sales completing from 27 October 2021 onwards which result in CGT (although note, non-residents have to complete a return regardless of whether CGT arises).

The introduction of the ‘in-year residential property CGT returns’ requires quite a shift in mindset for residential property owners.

There are penalties for late returns and too often, details of the sale of residential properties are still provided to the accountant after the end of the tax year of disposal.

This was fine in the days before the introduction of the in-year return, as a residential property disposal would only need to be included on the annual tax return along with any other capital disposals.

There is a process to go through in order for a taxpayer to register to be able to complete the in-year returns.

Given the 60-day deadline, this should be considered sooner rather than later as registering to file a CGT return can be a complex and time-consuming task in itself!

The filing of the in-year returns do not negate the need to complete an annual tax return under self-assessment, reporting the relevant gains also.

Often, it will not be possible to finalise a capital gains tax computation and calculate the tax at the time of the filing of the in-year return for a number of reasons.

For instance, it may be assumed the annual capital gains tax exemption is available to factor into the calculations.  However, it may be other gains already made have already used this.

Similarly, there may be further disposals made later in the relevant tax year creating losses which can often be used to reduce the residential gain.

Any adjustments to the CGT liability either way are accounted for on the annual self-assessment tax return.

Note though, that any estimated liability on the in-year return must be calculated on a reasonable basis (and the estimate box must be ticked), otherwise HMRC may charge interest on underpaid tax.

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