Extension to the 30-day reporting system on capital gains tax on residential property

NICK GILES, Tax Consultant at Page Kirk, reports on some good news from Chancellor Rishi Sunak and reminds us of the rules surrounding CGT reporting.

Since April 2020, UK resident taxpayers who dispose of residential property and create a capital gains tax (CGT) liability have been required to report and pay the CGT due to HMRC within 30 days of completion. Those who have experienced this system in practice will agree that meeting this 30-day window can be challenging. The issue has been exacerbated in certain cases by a continued lack of awareness amongst taxpayers, whose discovery of the new requirements can often occur post sale and give them fewer than 30 days, or in some instances lead them to miss the deadline altogether.

It is therefore welcome news that the Chancellor has announced that for residential property disposals that occur after 27 October 2021, taxpayers will now have 60 days to report their sale to HMRC and pay any CGT due. Unfortunately, sales before this date are still bound by the original 30-day deadline.

The announcement of the extension to this deadline provides a welcome opportunity to remind taxpayers of when and how they may be required to report gains under this system.

For a gain to be reportable, three criteria must be met: a taxpayer must dispose of a residential property; the property must be in the UK; and the disposal must result in CGT becoming due.

To meet this last criterion, a number of factors need to be considered. Firstly, a relief may be available which reduces the capital gain to nil. This will most commonly occur where a taxpayer disposes of their only home that they have lived in throughout their period of ownership. or where a holdover relief claim is made when a property is transferred into a trust.

Secondly, each taxpayer is entitled to a tax-free annual exemption of £12,300. If the resulting gain falls within this amount, no CGT would be due and the sale would not need to be reported under the 60-day system. Taxpayers can choose how they allocate their annual exemption and can assign it to a residential property disposal in preference to a disposal of another type of asset that wouldn’t fall within the 60-day reporting rules, even if that disposal happened earlier in the tax year.

Lastly, realised capital losses can be offset against the gain. This will include prior years’ capital losses that the taxpayer is carrying forward and any current year capital losses realised before the date of the residential property disposal. It cannot include future or potential capital losses even if the taxpayer knows they will be made before the end of the tax year.

It should be remembered that a gift of a property is still a chargeable disposal for CGT purposes, despite the fact that no money changes hands, and so would still fall under the 60-day reporting scheme if the above criteria are met.

If you are unsure about whether the 60-day reporting process applies to you, or require any assistance in fulfilling your obligations, please contact Page Kirk by calling us on 0115 955 5500 or emailing enquiries@pagekirk.co.uk