Property Returns and Capital Gains Tax

Property Returns and Capital Gains Tax

Meet the Team

The team specialises in working with people to ensure that they comply with HMRC regulations relating to property sales and payment of any resulting Capital Gains Tax liabilities.

“If you’re considering selling, gifting or transferring a property, it’s important to seek advice as early as possible.”

What can Old Mill offer?

With years of experience in Capital Gains Tax (CGT), our team can provide expert advice on the disposals of property. No two transactions are the same and our team appreciate the individual needs of each client to ensure a personalised experience.

We can help with all steps of the transaction from the initial planning

Who, what, where, when & why?

Who

•

What

Where

When

Why

stages, all the way through to the submission of the property return required by HMRC and advising on the payment of tax due.

Due to the number of contacts Old Mill have built up over the years, we’re able to communicate effectively with solicitors, land agents and valuers to ensure a smooth process throughout.

UK resident individuals, trustees and personal representatives

• Non-UK resident individuals, trustees and personal representatives.

• Any UK resident individuals, trustees and personal representatives who dispose of an interest in UK residential property that gives rise to a tax liability that is not covered by any relief, allowances or losses

• Any non-UK resident, individuals, trustees and personal representatives who dispose of an interest in UK residential property, UK commercial property or UK land regardless of if there’s a tax liability or not.

• UK assets only, not overseas.

• A property return and payment on account of tax made within 60 days of completioncompletion, for transactions that complete on or after 27 October 2021.

• HMRC are looking to bring CGT into a real time information process, meaning they’re updated more frequently and receive the payment of tax much earlier than through Self Assessment.

Additional guidance on who this applies to

Non-Resident individuals

Non-UK residents must continue to report disposals of interests in UK property or land, regardless of whether there’s a CGT liability within 60 days of completion of the disposal. This differs to the rules for UK residents as there are a number of exemptions for submitting a return. For example, the reporting exemption would not apply even if the asset was sold at a loss.

Another difference between the rules for UK residents is that non-UK residents must also report and pay the tax on nonresidential properties (e.g. commercial property or land) and any indirect disposals.

The calculation of the CGT position also differs as there are several ways to do this. One option is to rebase residential properties as at April 2015, which can help reduce the chargeable gain arising and therefore any potential CGT liability. For non-residential assets, these are rebased at April 2019.

Any tax owed must be paid within the 60-day reporting and payment period. Old Mill has a dedicated team who specialise in UK taxation for non-UK residents that can assist with the reporting requirements and any queries around the UK tax position.

Partnerships

A 60-day return will be required for each partner, if the asset leaves the partnership (sold, transferred etc).

Trusts & Estates

All trustees and personal representatives will also be liable to file a return on behalf of Trusts and Estates.

Transferring a residential property to a beneficiary from a Trust would be subject to CGT and therefore the reporting requirement would apply if it gave rise to a tax liability. If there’s no tax liability arising, it would instead be reported on the annual trust tax return.

There are also a number of wider issues to consider for Trusts and Estates. For example, there are different registration criteria which may need to be considered. Additionally, the Annual Exemption for Trusts and Estates isn’t as straight forward as for individuals. There may be a reduced Annual Exemption, or even no Annual Exemption available at all.

The reporting requirement

A property return will be required to be submitted to HMRC within 60 days of completion if a CGT liability arises. There are a number of exemptions or reasons why a return may not be required within 60 days which are outlined in this brochure.

If an individual is already in Self Assessment, the disposal will also then be included on the appropriate tax return when it’s prepared and submitted to HMRC, after the end of the tax year.

The tax return will contain details of the previously submitted property return to tie up the disclosures by way of reference numbers issued by HMRC.

If an individual isn’t required to submit a tax return for any other reason, and the payment of CGT through the property return is correct, there will be no requirement to register for Self Assessment to declare the disposal again on a tax return. This can ease the reporting requirements for individuals as long as there are no additional tax altering factors (e.g. losses incurred after 60 day window).

What property disposals need to be reported by UK residents?

The disposal of an interest in a UK residential property that gives rise to a tax liability needs to be reported to HMRC within 60 days of completion.

A disposal of an interest could be by way of an outright sale to a third party, a gift to a family member / connected person or a chargeable transfer to a Trust.

This change only applies to UK residential property, and not other chargeable disposals such as UK land, UK commercial property or overseas assets.

Examples of types of properties that may be impacted would be farm cottages, rental properties, holiday homes, inherited property or private residences where they’ve not been occupied for the full period of ownership.

Disposals that don’t need to be reported include:

• Transfers of property between spouse or civil partners (no gain / no loss transaction)

• Disposals at a loss

• Properties outside of the UK

• Disposals covered by way of relief (e.g. Principal Private Residence Relief)

• The gains (including any other chargeable residential property gains in the same tax year) are within the Annual Exempt amount.

“The disposal of an interest in UK residential property that gives rise to a tax liability needs to be reported to HMRC within 60 days of completion.”

Additional guidance regarding mixed-use assets

For UK residents, the disposal of mixeduse assets will need to be split out to determine the different chargeable elements and how each of these will be reported by the appropriate deadline.

Example for sale of a farm

By way of a simplified example, the sale of a farm could be split out as follows:

• Farmhouse – covered 100% by Principal Private Residence (PPR) relief (assumed owner occupied) so no tax liability

arising and therefore reported only on the tax return, with the deadline being 31 January following the end of the appropriate tax year

• Land – the asset isn’t subject to the rules meaning the capital gain will be calculated and reported, with any tax payable, through the tax return, with the deadline being 31 January following the end of the appropriate tax year

• Farm Cottage – this wouldn’t be covered by any PPR relief and would be subject to the rules meaning this element of the disposal would have to be reported, and any tax paid, within 60 days.

This example helps to illustrate the potential timing and cash flow issues as one element of the disposal will be declared and paid within 60 days, and the remaining chargeable assets then declared and balanced out at a potentially much later date via the tax return.

Example for sale of a business

By way of a simplified example, the sale of a mixed-use asset (flat and shop) could be split out and affected as follows:

• Shop (ground floor element of sale) –not a residential property meaning it’s declared and taxed through the annual tax return with the deadline being 31 January following the end of the appropriate tax year. This may also qualify for Business Asset Disposal Relief if it meets the specific criteria

• Flat (second floor element of sale) –this is a residential property and assuming there is a chargeable gain arising this would be subject to the rules meaning this element of the disposal would have to be reported, and any tax paid at the relevant prevailing CGT rate, within 60 days.

Preparing for the future

If you’re considering selling, gifting or transferring residential property, it’s important to seek advice as early as possible to establish the tax position and any reporting requirements. It may

be possible to structure the transaction as tax efficiently as possible whilst also maintaining the personal reasons behind this.

It’s important to keep a record of all costs incurred in respect of acquiring and disposing of assets to be able to calculate the CGT position. In addition to this, it’s worth noting details of any costs of ‘Enhancement Expenditure’ during the

ownership of the property as this may be claimed as a deduction.

Enhancement Expenditure is largely defined by HMRC as expenditure that is wholly and exclusively incurred on the asset by the owner for the purpose of enhancing the value of the asset and can be reflected in the asset at the date of disposal.

Timeline for sale of a property:

• On market

• Offer receivedadviser informed at this stage

• Progression of legal work

• Exchange

• Completion

• Submission of property return and payment of CGT within 60 days of completion.

Where a property is being transferred or gifted, there are a number of advantages and disadvantages that need to be considered.

One advantage is that it offers more flexibility over the timeline of the transfer as there are no third parties involved. However, a disadvantage would be that

Timeline for Transfer / Gift of a property:

• Obtain market valuation –adviser informed at this stage

• Progression of legal work – Deed drafted

• Completion – Transfer of Asset

• Submission of property return and payment of CGT within 60 days of completion.

the tax needs to be paid within 60 days of completion and therefore the cash must be available at this stage.

Where a property is being sold, the proceeds from the sale of the property would release funds to settle any potential liability.

Contact

Exeter

Leeward House | Fitzroy Road | Exeter Business Park | EX1 3LJ

+44 (0)1392 214635

Chippenham

Unit 2 | Greenways Business Park | Bellinger Close | SN15 1BN +44 (0)1225 701210

Wells Bishopbrook House | Cathedral Avenue | BA5 1FD +44 (0)1749 343366

Yeovil

Maltravers House | Petters Way | BA20 1SH +44 (0)1935 426181

The content of this document is for general information only. It should not be relied upon without taking appropriate professional advice. Please contact your usual Old Mill adviser or a local Old Mill office.

This service is provided by Old Mill Accountancy Limited.

Registered in England Number 13566765.

Registered office Maltravers House, Petters Way, Yeovil, Somerset, BA20 1SH

Version: August 2023