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In which circumstances do you not need to report or pay capital gains tax within 60 days following the sale of Residential Property?
Since 6 April 2020, all UK residents must file and pay capital gains tax on disposal of residential property within 60 days (increased from 30 days if the completion date was on or after 27 October 2021) following the completion day for UK land (including buildings) when there is a charge to capital gains tax.
These provisions are contained in Schedule 2 of Finance Act 2019; some of the main points in Schedule 2 are as follows:
This schedule applies for the purposes of capital gains tax to:
a) ‘Any direct or indirect disposal of UK land which meets the non-residence condition (whether or not a gain accrues) and which is made on or after 6 April 2019
b) any other direct disposal of UK land on which a residential property gain accrues and which is made on or after 6 April 2020.
c) but this Schedule does not apply to excluded disposals.
A disposal is an excluded disposal if:
i. it is a disposal on which, as a result of any of the no gain/no loss provisions, neither a gain nor a loss accrues
ii. it is the grant of a lease for no premium to a person not connected with the grantor under a bargain made at arm’s length
iii. it is a disposal made by a charity or
iv. it is a disposal of any pension scheme investments.’
The words ‘gain accrues’ in the above paragraph has been interpreted as where there is a chargeable gain after certain reliefs and there is tax liability to pay.
In its guidance, HMRC states that where the gain is fully covered by PPR relief, no return is required per paragraph 2.4.4 of HMRC CGT manual CG-APP18-240 on the 60-day reporting regime. In addition to this, no return is required if:
- the person is not liable to pay an amount on account for this disposal
- the person has already delivered their ordinary self-assessment tax return and included the disposal on that return
- the gain arising on the disposal will be fully covered by annual exemption. For 2022-23, annual exemption is £12,300 for individuals and £6,150 for trusts
- the taxable gain is covered with letting relief claim, if applicable (this is only available if the property was subject to PPR and all new letting relief conditions are met)
- he disposal is subject to ‘no gain no loss’ (such as transfers between spouses, civil partners, charity)
- there are brought forward capital losses which can be offset against the capital gains and no tax is payable as a result. Capital gains tax losses can be used to reduce the capital gains tax payable if the loss occurred before the completion date for the property concerned
- capital gains tax is payable for this disposal by the filing date for the return (which is within 60 days of the date of completion of the sale of the property).
For the purposes of calculating the amount payable on account it can be assumed that any claim, election or notice has been made or given where at the time of the disposal it is reasonable to expect that one will be made or given.
Use of HMRC calculator
You may use the HMRC online calculator to establish whether the gain needs to be reported within 60 days or not. If there is capital gains tax to pay, HMRC provides guidance on how to report and pay tax on UK property.
HMRC calculator cannot be used if any of the following applies. You:
- have sold land
- have sold business premises
- have sold other chargeable assets in the tax year, for example shares
- have reduced your share of a property that you still jointly own
- want to claim any reliefs other than private residence relief or letting relief
- are a company, agent, trustee or personal representative.
SA registration requirements
Individuals who have a CGT liability and are obligated to report/pay tax on gains within 60 days, and are in self-assessment (SA), must also report the disposal within their SA return.
Individuals who do not normally complete an SA return, should report and pay tax on gains based on their other income estimates before the reporting deadlines. Once the final income details are available for the tax year, then an amended return may be required if the correct amount of tax is not paid. Alternatively, they may choose to register for self-assessment to report their income details. If a person has failed to take into account information available at the time the payment on account calculation was made and the actual liability is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
Schedule 2 (para 14, 15) of FA 2019 allows reasonable estimates to be made of an individual’s taxable income for the year, and of valuations and apportionments, where it is reasonable for the person to do so based on the circumstances and the person’s knowledge at the time.