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It is probably fair to say that the UK tax rules and reporting obligations relating to the disposal of land and property have been subject to sweeping changes in recent years. We have seen the introduction of the Non-Resident Capital Gains Tax regime for UK residential property sales post 6 April 2015 which has now been extended broadly to non-resident corporate entities.
In addition, from April 2019 the regime was extended to include commercial property and related transactions and from the beginning of this month all non-resident corporate entities are fully within the scope of corporation tax in relation to income derived from UK property.
It is therefore no surprise that there have been further developments which will now impact all property owners, including those that are UK resident, who dispose of residential property from 6 April 2020 and have a chargeable gain to report.
Historically, when there has been a property disposal made by a UK resident that was subject to capital gains tax, the disposal was reported through the self-assessment tax return. Any capital gains tax arising would be payable by 31 January following the end of the tax year in which the disposal occurred.
The New Regime
With effect from 6 April 2020, a disclosure will need to be made, along with the payment of any capital gains tax within 30 days of the completion date of a residential property disposal in order to avoid penalties being levied.
In many cases this will also require an estimate of the tax liability to be calculated given that the capital gains tax rate bands (18% and 28%) are linked to an individual’s marginal rate of income tax for the year. The final tax liability will then be reconciled through the self-assessment tax return which will need to be filed by the 31st January following the tax year of sale.
Whilst this legislative change brings about a further administrative burden, it has been confirmed that the new reporting and payment requirements will not apply if the gain is not chargeable to capital gains tax. For example, if an individual dispose of his only home which he has lived in continuously throughout. Further exemptions may apply if the disposal relates to a foreign residential property where double taxation treaty interaction may be required.
It will be prudent therefore to consider and plan for the tax position in advance of any sale so that you are fully appraised of your position well in advance, especially given the short window in which action is required post sale.
In order to make the appropriate filing HMRC has set up a new online portal, “Capital Gains Tax on UK Property Account”. This service can be accessed through a Government Gateway account which may first need to be set up for those that currently do not have. Or the new service can be added to an existing account.
Should you require the assistance of an Agent to undertake the filing on your behalf, then there are further authorisation procedures that will first need to be undertaken.
Again, it is important to think carefully about all the practicalities here given the strict 30-day reporting deadline.
Generally, when the Government introduces a new tax filing obligation there is a grace period for late submissions whilst people familiarise themselves with new reporting requirements and we expect this to apply here. In fact, HMRC has recently confirmed specifically that penalties for submission of late returns will not apply before 31st July 2020.
This means that reporting due in the period up to 30th June 2020 can be extended to this later deadline. Interest will however continue to accrue on any tax due after the 30-day period.
HMRC expect that in most instances, individuals will have no undue hardship paying the tax due on the basis that they have likely sold a substantial asset and have received the proceeds and so should be settling their liabilities. There has however been updated guidance in relation to what HMRC terms a “Flexible Approach” that it will be taking in certain specific circumstances, including for example where the tax arises due to a gift being made or in circumstances where the sales proceeds are being introduced into a business in order to keep it afloat during the current COVID 19 crisis.
Anyone facing difficulties paying their taxes during this time should contact HMRC at the earliest opportunity. Various helplines have been set up to provide further support and assistance.
For more details HMRC has produced updated guidance that can be accessed here: https://www.tax.service.gov.uk/capital-gains-tax-uk-property/manage-clients-capital-gains-tax-on-uk-property-account
Should you require any advice or assistance in this area, please do not hesitate to speak with your usual SG contact or you can email firstname.lastname@example.org
We are able to deal with all aspects of the reporting process and can assist both UK and Non-UK residents meet their CGT filing obligations.