It was recently the third anniversary of the Government introducing a new type of tax return: the Capital Gains Tax UK Property Disposal Return. However, due to a lack of publicity, many people (understandably) continue to be unaware of its existence.
The intention of this article is to highlight why such a tax return exists, and when it is required. In many cases, it will not be necessary to submit such a tax return.
For reason of convenience, we will refer to it simply as a CGT Return for the remainder of this article.
What is a capital gains tax return?
The CGT Return is (primarily) an online form, used to inform HMRC about the disposal of certain properties located in the UK.
It does not apply to properties located outside of the UK. With one exception, it does not apply to assets other than property (ie land or buildings).
A “disposal” includes a sale, gift, or transfer.
What is the deadline for filling a capital gains tax return?
The disposal date will be the date of exchange. If a CGT Return is required, it will need to be submitted to HMRC within 60 days of the date of completion. This assumes that the date of completion is on or after 27 October 2021. Penalties can apply if this date is missed.
When is a capital gains tax return required?
The answer to this will depend on whether the person(s) disposing of the property is UK resident or non-UK resident for UK tax purposes.
If a property is being disposed of by multiple persons, each person will need to separately consider their own position in relation to their share of the property.
Because the return relates to CGT, it is applicable for individuals, trusts and estates. It is not applicable to companies.
Position for UK residents
A UK resident will need to submit a CGT Return if both of the following points apply:
- The UK property is wholly or partly residential property (eg a house or flat), and
- There is CGT for them to pay
The first point means that the disposal of a property which is wholly non-residential (eg a shop or a piece of bare land) does not need to be reported via a CGT Return. If the property is a mixture of residential and non-residential (eg a shop with a flat above), it is only the residential element which needs to be reported.
The second point means that if there is no CGT to pay, then again no CGT Return is required. There are various reasons as to why someone might not have CGT to pay – including:
- The property generates a loss
- The property generates a gain which is less than the available tax-free annual exemption
- The property generates a gain which is wholly covered by available capital losses
- The property generates a gain which is wholly covered by principal private residence relief (the rules and scope of principal private residence relief can be complex, but they include the position where a person disposing of the property has continuously lived in it as their main home for the entire period that they have owned it)
Position for non-UK residents
Any disposal of UK property will require a CGT Return to be submitted.
It does not matter whether the property is residential. It does not matter whether there is any CGT to pay.
Depending on the circumstances, a non-UK resident may need to report a disposal of shares in a company which owns UK property.
Does the capital gains tax return have to be submitted online?
This is the default option and is the option that HMRC expect taxpayers to use (where available).
However, an alternative paper option does exist. Until recently, it was only possible to request a blank paper form by phoning HMRC and explaining why it is required. At the time of writing though, a trial is ongoing whereby HMRC have made it available to download from GOV.UK.
HMRC say that for individuals, the paper option should only be used where they are unable to use the online service. If too many people are found to be downloading the paper return during the trial period, HMRC might decide to remove it again.
Once a CGT Return has been submitted, HMRC will issue a payment reference number. This is done immediately with the online option, but there will often be a significant delay with the paper option.
There are certain circumstances where the paper option is only option. The most common of these, which we see a lot, is where an estate has sold the property and the executors wish for their solicitor/accountant (eg Moore Barlow) to prepare the CGT Return. In such a circumstance, the reporting must be done by paper.
How does the capital gains tax return interact with the annual self-assessment tax return?
If a person is required to submit an annual Self-Assessment Tax Return for the tax year in which they made the disposal, they will still need to report the disposal in that tax return as normal. Hence they will be declaring it twice to HMRC – firstly through their CGT Return, and then again through their Self-Assessment Tax Return.
To avoid CGT being paid twice, they should claim credit in their Self-Assessment Tax Return for the CGT previously reported and paid through their CGT Return.
However, if a person is not required to submit a Self-Assessment Tax Return for the tax year of disposal, then their CGT Return will be their only declaration of the CGT position to HMRC.
One slight quirk is that if a person can submit their Self-Assessment Tax Return before the 60-day deadline, then they are not required to first submit a CGT Return. However, in practice, it will be rare that any person is able to do this.
How Moore Barlow can help
The above is correct at the time of writing and should not be taken to constitute formal tax advice.