Following rule changes effective from 27 October 2021, if you have disposed of a UK residential property, you may be required to submit a return and settle your liability within 60 days from completion of the disposal. It is important to note that this can include your only home.
If you are a UK resident and you dispose of a UK residential property, giving rise to a Capital Gains Tax charge, you must complete a Capital Gains Tax on UK property return.
These rules are extended for non-UK residents; you must complete a return if you dispose of any kind of property, and you must complete a return even if you have no Capital Gains Tax liability.
Here are a couple of examples where HMRC must be notified:
Example 1
Mr & Mrs Smith live in the UK and own a holiday home by the coast. As they approach retirement age and have started to use the property less, they decide to sell the property to provide them with a comfortable standard of living during retirement.
They purchased the property in 1990 for £100,000, incurring professional costs of £2,200 and stamp duty land tax of £1,000. In 2007, they built an extension at a cost of £7,200.
They received an offer of £300,000 for the property and agreed on a sale which was completed on 31 December 2021. They have incurred £5,000 of professional costs on the sale.
Their taxable gains will be £80,000 each. As a result, Mr & Mrs Smith must submit Capital Gains Tax on UK property returns and pay their Capital Gains Tax liabilities by 1 March 2022.
Example 2
Mrs Jones is an investment banker who moved to France for work in 2017. She has only made the occasional visit to the UK since and is currently non-UK resident. Alongside her salary, she also receives rental income from a portfolio of UK properties. She wishes to provide a family member with a regular income and therefore gifts one commercial property to the family member.
Mrs Jones purchased the property in 2010 for £90,000 and the property was worth £110,000 on 6 April 2019. She transfers the property on 15 December 2021 when the property was worth £120,000.
Under special rules used to calculate disposals of property by a non-UK resident, the disposal of the property makes a gain of £10,000, and after the deduction of her Annual Exemption, she does not have a taxable gain.
However, as a non-UK tax resident, Mrs Jones must still submit a Non-Resident Capital Gains Tax return by 13 February 2022.
Other instances where you might need to complete a return could be where you sell a property where Principle Private Residence relief does not cover the whole gain or where a property is disposed of by a deceased person’s estate.
Here are a few important points to think about when considering selling a property:
- If you are selling your main home, does the property include a garden larger than half a hectare? If so, Principle Private Residence may not be available in full.
- These rules apply to trusts and estates as well as individuals. Disposals made by individuals, trusts and estates are all calculated differently, with different Annual Exemptions available and gains being charged at different rates.
- An initial £100 late filing penalty is issued for late returns, with further penalties issued if a return is 6 and 12 months late.
- You will need to set up a Government Gateway account and a Capital Gains Tax in UK property account to report the disposal using the online service.
If you are considering disposing of a UK commercial or residential property it is important to understand your UK compliance obligations. As such if you think you may need to report the gain to HMRC, please get in touch with us.
