From 6 April 2020 there was a change to the way in which gains arising on the disposal of a residential property needed to be reported to HMRC and the payment date of any CGT.
The main change was that following completion of the sale of a residential property you have 30 days to report the disposal to HMRC and pay the tax. If this a strict timeline is not met interest and potentially penalties will apply.
This change applies to individuals, trustees, personal representatives and members of a partnership including a trading LLP where it disposes of residential property.
Although the legislation is restricted to residential properties it will catch mixed use properties such as a shop with upper parts that are residential. A gain will need to be apportioned between the residential and non-residential and reported to HMRC and tax paid on the gain applicable to the residential part.
What does this mean in practice?
- When contemplating the sale of a residential property (or mixed-use property) you should let us know as soon as possible.
- You need to have available details of the cost of the property (including acquisition costs such as professional fees and SDLT) plus any improvement costs that have not been claimed as an expense against rental income.
- Any delay in providing this information may make meeting the HMRC 30-day deadline very difficult.
- You will have to pay the CGT liability 30 days after completion.
- If a subsequent residential property sale takes place which creates a loss it may be possible to make an “in the year” repayment claim.
- However, if a subsequent CGT loss arises on a non-residential sale e.g. the disposal of shares this cannot be offset against any previous CGT paid until the end of the tax year. Therefore, consideration should be given to disposing of shares prior to the disposal of a residential property. This will not always be easy to anticipate but should be borne in mind.
- Where individuals are members of a trading LLP that sells a residential property held as a fixed asset it may be easy to overlook this reporting. Non trading LLPs are not affected.
- If you dispose of a property you previously lived in but has been rented this may also be caught.
- If you gift a residential property even though you may receive no cash if the market value at the date of gift is higher than cost this will be caught.
The key point is whenever you are involved with the sale of a residential property (or a mixed-use property) that is not held via a limited company you should speak to us before the sale.
If you wish to speak to a member of our specialist property tax team please contact us on 020 7330 0000 or email email@example.com.