Helen Thornley
Technical Officer, Association of Taxation Technicians (ATT)
On 6 April 2020, a major change to tax payment dates came into force. It applies to landlords, second home owners, divorcing couples, trustees and executors–indeed any UK resident who sells or gifts a residential property situated in the UK, on which a capital gains tax (CGT) bill arises.
Previously, individuals who disposed of such property had until January following the end of the tax year (so a minimum period of almost 10 months) to deal with any tax consequences through self-assessment. Now, those who think that they might have a CGT bill on a residential property sale must first calculate, report and pay the tax due within just 30 days of the completion date – a significantly shorter window – using HMRC’s new online reporting system.
Fortunately, not all homeowners will be in scope, as the requirement to report and pay only applies if there is tax to pay. Homeowners who have lived in a property throughout their ownership would usually expect to be exempt from CGT under the provisions of private residence relief, and will not normally have to worry about the new rules.
Anyone who does not realise that these new rules apply to their disposal could be subject to significant penalties.
However, changes to private residence relief, which also took effect in April, may increase the number of people with tax to pay. For example, homeowners who move out before a sale can still receive private residence relief to cover their final months of ownership. In April, despite the effects of COVID-19 on the property market, this period of grace to sell an ex-home was reduced from 12 months to nine. Those who have let properties that they used to live in will also be facing higher bills as letting relief has also been restricted.
Penalty risk
Anyone who does not realise that these new rules apply to their disposal could be subject to significant penalties. When similar rules were introduced for non-residents back in April 2015, many individuals were unaware of the changes and continued to report property sales to HMRC after the tax year via self-assessment. By the time they found out that a 30-day report should have been made as well, the accumulated penalties were often in excess of £1,000. Similar penalties will also be applied to UK residents who omit to report and pay in time.
Given the tight deadlines – and the time it can take to gather the information to establish if there is any potential tax liability – those looking to sell a residential property need to consider well in advance whether or not the sale might result in a tax bill.