Further to the commencement of the new tax year last week, it is now necessary for an online capital gains tax (CGT) return to be submitted in certain cases where a building is disposed of. Where such a tax return is required, the submission deadline will be 30 days from the date of completion.
The disposal itself takes place on date of exchange. Therefore, where exchange took place before 6 April 2020, this type of tax return will not be necessary.
The most common form of “disposal” is a sale, often to a third party. However, a disposal can encompass a variety of different situations. For example, a gift to a family member, or a transfer following a divorce are other examples of a disposal.
An online tax return will be required in the following circumstances:
Where the person making the disposal is a UK resident
- The property is residential property (wholly or partly) – e.g. a house or holiday home
- A capital gain is realised on such a sale, and with CGT duly payable as a result
Where the person making the disposal is non-UK resident
- The property is residential, or non-residential, or a mixture
It does not necessarily have to be an individual who is making the disposal. Disposals by trusts are also caught by this legislation.
Where a property is jointly owned, each owner is separately taxed and will need to submit their own tax return.
There are two primary reasons as to why the Government have introduced this new tax return. The first is to allow them to collect CGT quicker than was previously the case. The second is to save people needing to sign up to do a full annual tax return, simply for the reason of needing to declare a property disposal (although if someone has another reason for needing to do a full tax return, then they will still need to do one). Effectively UK taxpayers are split into two categories – those who are required to do annual tax returns, and those who are not. In relation to those people who are required to do annual tax returns, they will need to report such a property disposal twice: once through this new online tax return, and then later through their annual tax return. For people who are not required to do annual tax returns, this new online tax return will be their only form of reporting.
In relation to a UK resident, it might not always be clear to them as to whether they have CGT to pay or not. This is clearly important, because it helps determine whether a return is required. Professional advice may need to be required, and this is something which Moore Blatch can provide. Given the submission deadline is only 30 days after completion, such advice should be sought sooner rather than later. Effectively, it is a two-stage process for UK residents. Firstly, the need to determine whether CGT is payable. Secondly, if CGT is payable, to prepare and submit the tax return within the 30 days. The CGT itself will also need to be paid by this deadline as well. Depending on your requirements, Moore Blatch can assist you with both stages, or just the one.
There are various reasons why CGT might not be payable by a UK resident. They include:
- The property is sold for a loss, rather than a gain.
- The property is sold for a gain, but the entire gain is covered by principal private residence (PPR) relief. This will be the case if the property has always, and wholly, been used as the main residence by the person selling the property, since they first acquired. If it has only been their main residence for part of their ownership period, some degree of PPR relief will be available, but potentially not enough to cover the entire gain.
- The property is sold for a gain, but that gain is less than annual exemption.
- The property is being transferred between spouses who are not separated.
- The property is being gifted to charity, for no consideration.
This is not an exhaustive list.
Indeed, for all UK taxpayers – whether UK resident or non-UK resident – the exact amount of CGT payable will not always be able to be determined within the 30 days. This is because CGT is calculated on a tax-year basis. Income generated, or disposals realised, after the above property disposal (but within the same tax year) could impact on the amount of CGT payable. Consequently, the amount of CGT payable within the 30 days will essentially be a best-estimate, with the CGT payment representing a provisional on-account amount. If it later transpires that the calculation is incorrect, the revised position will need to be reported to HMRC.
Regardless of whether you seek professional assistance with preparing your tax return, or you choose to do it yourself, you will first need to create a “Capital Gains Tax on UK Property” account with HMRC. This is done using your online “Government Gateway” account. If you already have an online “Personal Tax” account with HMRC, then this will be the same login details. However, many taxpayers are unlikely to yet have an online Government Gateway account. If so, this will require you to sign-up online, and create one. Once you have an online Government Gateway account, the next step will be to separately create a Capital Gains Tax on UK Property account (using your Government Gateway login details). Once created, you will be assigned a specific account reference number. If you choose Moore Blatch, or any other firm, to prepare your tax return, then you will need to provide this reference number before the process can proceed.
Link for creating a Government Gateway account (for anyone without one already): https://www.gov.uk/log-in-register-hmrc-online-services
Link for creating a Capital Gains Tax on UK Property account: https://www.tax.service.gov.uk/capital-gains-tax-uk-property/start/report-pay-capital-gains-tax-uk-property
Link for HMRC assistance: https://www.gov.uk/government/organisations/hm-revenue-customs/contact/capital-gains-tax-enquiries-for-individuals-employees-and-self-employed