There is a lot of guesswork surrounding how the new digital reporting regime will work in respect of the capital gains relating to the sale of residential properties by UK residents. Having listened to the HMRC webinar recently on this very subject, I am now much clearer on how this will work in practice and the issues that it may present to individuals.
The changes come into effect for any gains incurred from 6 April 2020 and here is a list of the most common questions that were raised in the session:
What date triggers the tax year in which any capital gain is calculated?
The date is the date contracts are exchanged. For example contracts exchanged on 3 April 2020 means that the gain is taxable in 2019/2020 and will not be subject to the new digital reporting requirements. A contract exchanged on 10 April 2020 will be taxable 2020/21 and will be subject to the new reporting requirements.
What is the deadline for reporting any taxable capital gain?
The gain has to be reported within 30 days of the date of completion where the gain falls in the 2020/21 tax year or later. For example the date contracts were exchanged was 10 April 2020, the date the transaction was completed was 15 May 2020. Any taxable capital gain has to be reported by 14 June 2020 on the new UK Property Service Digital platform.
What information will be required in order to make the relevant digital report?
The following information will be needed:
- A personal digital tax account
- Property address and post code
- Date acquired
- Exchange date
- Completion date
- Purchase costs including legal fees, stamp duty etc
- Sale price and associated costs
- Any other claims or tax allowances
- Tax rate applicable to the transaction
If I have capital losses brought forward from earlier years can these be offset against the capital gain and do I still need to report?
In general terms, the use of capital losses has not changed and therefore it is likely that these can be offset against any capital gain generated. If the losses exceed the gain or reduce the gain to below the capital gains annual exemption limit the new rules will not apply and a digital report is not required.
If the sale of the property in the new regime generates a capital loss does this need to be reported within 30 days?
At present, the capital loss on the sale of a residential property does not need to be reported within the 30 days. However if a capital gain has already been reported on which tax was paid you may wish to report the loss in order to generate a refund. The other alternative is to claim the capital loss via the completion and filing of the self-assessment tax return.
Will I still need to report the capital gain on a self- assessment tax return?
If you are already in self-assessment and have to complete a tax return then you will need to include details of the capital gain on your return. There will be additional boxes to complete for any tax that has already been paid over as part of the digital reporting process. If you are not in self-assessment as long as the only reportable event in the year is the capital gain which has been filed via the digital reporting process no further self-assessment or other returns will be required.
What happens if I don’t have all of the information available within the 30 day reporting deadline?
It is likely that not all information may be readily available when selling a property especially for properties that have been owned for a long period of time. In these circumstances you would still need to report within the same 30 day reporting window using the best estimates that you have. The tax payment based on these estimates would be due at the same time. You then have 12 months in which to report the actual figures that are required. If the actual figures are updated on your self-assessment tax return then you do not need to update the UK Property Service digital platform. Please note that where the actual tax is higher, interest will be applied.
In my opinion, the element that could go wrong and cost the taxpayer in terms of additional tax, interest and possibly penalties is the incorrect calculation of the capital gain in the first place. The reporting element is simply a function of reporting the exact figures once they have been calculated. Without the calculations you cannot assess accurately if a report is needed in the first place and this should be the first point of call. Capital gains tax remains a complex area and one that is also subject to change, we are already aware of changes relating to rental properties that were previously owner occupied.
Therefore if you are considering selling a residential property always seek professional advice to ensure that the capital gains tax has been correctly calculated, it is better to be safe than sorry.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.