It has been just over a month since changes to the 30-day Capital Gains Tax (CGT) rule came into force and talk of a CGT increase began hotting up, as Rishi Sunak attempts to claw back the multi-billion pound costs of the Covid-19 crisis.
The Chancellor’s November Budget may bring with it a CGT hike, meaning it could be paid at the same rate as income tax. While we wait with baited breath to see if landlords will help to pay the price for the spiralling costs of a global pandemic, what we do know is that since 1 August HMRC has been clamping down on any property owner who hasn’t reported and paid CGT within 30 days of selling a property in the UK after 6 April 2020.
The 30-day rule is nothing new. We’ve had a number of months to adjust to the changes that came into force in April, but the honeymoon period is definitely over and HMRC is holding no prisoners when it comes to late filing. As with all aspects of tax, there are often more questions than answers when it comes to understanding the dynamics of rule changes. So, what are the most common concerns and queries facing UK landlords now that penalties and interest payments loom large? Let’s start at the beginning.
What are the 30-day payment and reporting obligations?
HMRC developed a new system for reporting and paying Capital Gains Tax on UK residential property, which means any UK resident disposing of an asset that makes a gain which is liable to CGT will have 30 calendar days from the date of completion (not exchange) to tell HMRC and pay any tax owed. They need to do this using a new online service.
Who does it apply to?
These changes apply to both people living in and outside of the UK. However, due Private Residence Relief, it doesn’t apply if the residential property is the person’s home and it’s been used solely as their private residence during the time it was owned, meaning landlords are right in the firing line when it comes to being a target of these changes.
How do you report to HMRC?
There are three ways to notify HMRC: you can generate a report and payment by using the Capital Gains Tax on UK property service within 30 days of selling the property. Alternatively, you can do it straight away using the ‘real-time’ Capital Gains Tax service, or annually in a self-assessment tax return – this applies if you sold the property before 6 April 2020. If you need to send a self-assessment return for another reason, it’s important to include capital gains on your return, even if you’ve already reported and paid them.
What do you need to produce a report?
As with anything tax related, it’s advisable to get your house in order before you start. The most important things to remember are calculations for each capital gain or loss you report; any other relevant details, such as any reliefs you’re entitled to; and information from your records about the costs and what proceeds you received for each asset. You’ll also need a Government Gateway user ID and password. If you don’t have a user ID, you can create one when you report and pay.
When do you need to report?
You can use the ‘real-time’ service as soon as you’ve calculated your gains and the tax you owe. Unlike many circumstances involving tax, you don’t need to wait until the end of the tax year.
The dates to remember are 31 December – you must report by that date after the tax year when you had the gains – and, obviously, the tax year runs from 6 April to 5 April the following year.
How does this impact a self-assessment return?
You can file a self-assessment tax return to report your gains in the tax year after you disposed of assets.
However, here’s where the changes kick in. If any of your CGT gains are from UK property sold after 6 April 2020, you should have reported them within 30 days of the completion. The important bit to remember is that you still need to include these gains in your tax return, if you send one.
While most landlords will be familiar with a self-assessment tax return, if for some reason you don’t usually send one, you’ll need to register for self-assessment after the tax year you disposed of your chargeable assets. If you’re unsure, contact HMRC by 5 October.
Another key date to cement in your mind is that you must send your return by 31 January (31 October if you send paper forms).
What circumstances do you NOT need to provide a 30-day report?
There are a few exceptions to the rule, so it’s worth familiarising yourself with these to save you from having to complete a report unnecessarily. These include: if it’s a commercial property; if it’s based overseas; if the date of exchange was before 6 April 2020 (even if the date of completion falls on or after 6 April 2020); where there’s actually no capital gains tax to pay, although this scenario is unlikely for landlords given that it’s most common when you’re disposing of a property that’s been your home and solely used as a private residence during the time it was owned; Alternatively, there may be no capital gains tax to pay because the chargeable gain does not exceed the annual exemption (£12,300 for 2020/21), or there is a capital loss.
What happens if I don’t tell HMRC about the capital gain on a UK residential property within 30 days and there is a CGT liability?
Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 calendar days. If the 30-day report is not submitted by the deadline, a £100 late-filing penalty will apply. Further penalties will be applicable for a continued delay.
Will interest accrue if the tax remains unpaid after 30 days.
The simple answer: yes.
Do I need to report the disposal on a self-assessment tax return if I’ve already made a 30-day report?
If there’s no other reason that you would need to complete a self-assessment tax return, you’re not obliged to register for self-assessment in order to report the disposal if you’ve already made a 30-day report.
I already complete a self-assessment tax return. Do I still need to make a report?
In almost all cases, the answer is yes. However, there are two scenarios when you won’t be required to complete one. These are: the 30-day deadline falls after the date on which the tax return is due to be filed for the tax year in which the disposal is made; or, the deadline falls after having already reported the disposal on a self-assessment tax return.
What if I need to amend my 30-day report after submitting it?
At the moment, you cannot make the amendment online. Instead, you need to contact HMRC and explain the amendment that’s required.
What if I need to submit another 30-day report in the tax year?
Under the current rules, you’re only able to submit one 30-day report online per tax year. If you dispose of a further property and that requires you to submit a further 30-day report, you must contact HMRC
Mike Parkes is technical director at GoSimpleTax, a self-assessment tax software.