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Landlords and second homeowners will have 30 days to pay capital gains tax

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Property sellers will have just 30 days to pay their capital gains tax (CGT) bill as a coronavirus-related grace period comes to an end this Friday.

From 1 August, landlords as well as second or holiday homeowners who sell their properties at a gain will have just 30 calendar days to inform HMRC and make a CGT payment.

If they fail to meet the deadline, they’ll be subject to a £100 fine, rising to £300 or 5% of any tax due (whichever is greater) the longer the payment is outstanding.

In February HMRC confirmed the deadline for paying CGT after the sale of a residential property in the UK would change from 6 April 2020.

It was a drastic cut from the previous near two-year payment window, but the rules were relaxed in May amid the coronavirus pandemic.

However, this grace period comes to an end on Friday 31 July.

When do you need to report and pay CGT?

Everybody gets an annual tax-free allowance which currently stands at £12,300 (£6,150 for trusts) so you only pay CGT on profit above this.

CGT is applied when you sell or dispose of the following:

  • a property that you’ve not used as your main home
  • a holiday home
  • a property which you let out for people to live in
  • a property that you’ve inherited and have not used as your main home.

If you dispose of an asset you jointly own with someone else, you have to pay CGT on your share of the gain.

Higher rate taxpayers pay 28% on gains from residential property, while basic rate taxpayers pay 18% (or up to 28% depending on the size of your gain, your taxable income and amount above the basic rate).

HMRC said sellers won’t need to make a report and make a payment within 30 days when:

  • you meet the criteria for Private Residence Relief
  • the sale was made to a spouse or civil partner
  • the gains (including any other chargeable residential property gains in the same tax year) are within your tax free allowance (called the Annual Exempt Amount)
  • you sold the property for a loss.

Robert Pullen, partner at tax and advisory firm Blick Rothenberg, said: “While the initial extension was welcome, it is unfortunate HMRC do not recognise that people’s lives are still very much disrupted. Reintroducing the £100 penalty for the short 30-day filing deadline seems very harsh given the circumstances.

“It would have been fairer to provide a further extension to the deadline, until later this year, when hopefully more offices are open, and people begin to get back to something closer to normal.”

Pullen said that a new online administrative system for paying CGT is still experiencing teething issues which means executors of a deceased estate can’t use it and instead have to report the disposal on paper.

He added: “On the one hand the government are trying to kick-start the property market with the SDLT holiday payment launched, it does not seem right that with the other hand they are tightening the reporting time limits.”

HMRC said there are clear differences between CGT and stamp duty. With CGT you have disposal proceeds and it can be paid electronically while SDLT falls on the buyers and the freeze is “an entirely different kind of tax”.

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