Warning for landlords as capital gains tax payment window cut from two years to 30 days
HM Revenue & Customs (HMRC) confirmed the deadline for paying CGT after the sale of a residential property in the UK will change from 6 April 2020.
From that date, landlords as well as second or holiday homeowners who sell their properties, will have just 30 calendar days to inform HMRC about the sale and make a CGT tax payment.
Failure to do so will result in a penalty and interest on the amount owed:
- up to six months, you will get a penalty of £100
- more than six months, a further penalty of £300 or 5% of any tax due, whichever is greater
- more than 12 months, a further penalty of £300 or 5% of any tax due, whichever is greater.
This is a drastic cut from the current payment window. Until 5 April 2020, property owners disposing of an asset will have until 31 January 2022 (the self-assessment tax return deadline) to pay their CGT bill– that’s 22 months maximum.
However, for completions which fall on or after 6 April 2020, CGT will need to be paid within 30 days.
Rachael Griffin, tax and financial planning expert at Quilter, said 30 days doesn’t give a lot of time following the sale of a house, a process that is already somewhat stressful and complex in itself.
She said: “For those who own more than one property they will need to ensure they are prepared for any liquidity issues that may subsequently appear following the reduction in the time to pay the charge. People selling a house need to make sure they have taken into account all the fees and charges they have to pay to estate agents, solicitors and the like, in order to have enough left over to pay this tax.
“Additionally, it could have the impact of making reinvestment of the sale proceeds more difficult as this money now needs to be earmarked for the tax charge, rather than worry about it in over a year’s time.”
The new rules apply to the sale of residential property only and do not apply to other assets such as shares or personal possessions.
When do you need to report and pay CGT?
Everybody gets an annual tax-free allowance which currently stands at £12,000 (£6,000 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 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:
- a legally binding contract for the sale was made before 6 April 2020
- 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
- the property is outside the UK.
HMRC will also launch a new online service allowing sellers to report and pay any CGT owed.
If you’re using an agent, they will need to register with the Agent Service and should ensure the liability is reported and paid within 30 days of completion or disposal.
For Trusts, they need to be registered with the Trust Registration and again, CGT needs to be reported and paid within 30 days of the completion or disposal or property.