There are changes on the way in Capital Gains Tax (CGT) for UK residents, they will be required to report and pay for capital gains on residential property within 30 days of the sale. UK resident companies are not affected by these proposed changes.
The Basics, currently, a capital gain by UK resident individuals is reportable through the self-assessment tax return regime. This means that, if an individual disposes of a property, for example, anywhere between 6 April 2018 and 5 April 2019, it will be notified on his or her 2018/19 tax return, which need not be submitted until 31 January 2020 with the corresponding capital giants (CGT) being payable on the same day. The current regime means, therefore, that it can be anywhere between roughly 10 and almost 22 months before the CGT is returned and settled.
The government intends to require UK residents, within 30 days of completing the disposal of a UK residential property:
• to prepare a provisional CGT return, and
• Make a provisional payment on account of the CGT found ultimately to be due
People will still have to fill in the CGT pages of their self-assessment tax returns and to pay any outstanding CGT by 31 January following the tax year in question. The new regime will apply for disposals made on or after 6 April 2020 – i.e. the 2020/21 tax year.
There is a good reason for the apparent duplication – i.e. still having to keep the CGT pages of the self-assessment tax return. The reason is that, just as with income tax, CGT is assessed on an annual basis, and brings into account all of the gains and losses of a tax year. The rate of CGT applicable can depend on the total taxable income in the same tax year. The government nevertheless wants tax payers to make an educated guess as to the CGT that will eventually be due and pay it very quickly.
The government intends that the tax payer should:
1) estimate his or her income for the tax year, to work out roughly how much of the gain is taxable
at 18% and how much is taxable at 28%;
2) offset any capital losses brought forward or that have already arisen in the tax year prior to
3) ignore any gains made, other than on residential property so far in the year, so that residential property gains can benefit from the annual CGT exemption and losses to date.
Exceptions. There will be no need to make an on-account return where there is no CGT to pay, for example:
1) where it is a ‘no-gain/no-loss’ transaction, such as between spouses and civil partners;
2) where the gain is covered by private residence relief;
3) where any losses or annual exemption are sufficient to cover the gain.
A gift or sale at undervalue, that trigger a capital gain will last trigger a requirement to report. Many taxpayers do not appreciate that it is basically only gifts between spouse and civil partners that may be tax-free, and mistakenly believe that CGT does not apply to any gifts because there are no proceeds.
Penalties will apply to late returns, and to late payment, under the new regime. These will be in addition to any penalties under the standard self-assessment regime.
The government is clearly not too concerned about inconveniencing taxpayers here. The extra work is about getting the same money into the exchequer, only at a much earlier date. The only entities that are currently excluded from the new regime in UK resident companies, another reason to hold properties in a limited company.
For further information on this or other topics relating to property investment, your property business or property specific tax contact us on 01332-369999 or contact us via the website at www.milestone-solutions.co.uk.