Certain changes regarding payment of CGT took effect from April 2020 which align the position of UK residents with that of non-UK residents.
Broadly, from 6 April 2020, a UK resident who sells a residential property in the UK will have 30 days to tell HMRC and pay any capital gains tax (CGT) owed.
Failure to notify HMRC within 30 days of completing a sale may result in penalty and interest charges.
A CGT report and accompanying payment of tax may be required where the taxpayer sells or otherwise dispose of:
- a property that they have not used as their main home;
- a holiday home;
- a property which has been let out for people to live in;
- a property that has been inherited and not used as a main home.
There is no requirement to make a report make a payment of tax when:
- a legally binding contract for the sale was made before 6 April 2020;
- the individual satisfies the for Private Residence Relief (generally a main residence);
- the sale was made to a spouse or civil partner;
- the gains (including any other chargeable residential property gains in the same tax year) are within the tax free allowance known as the annual exempt amount (£12,300 in 2020/21);
- the property is sold for a loss; or
- the property is outside the UK.
Subject to certain exceptions, where there has been a disposal of a residential property, payment on account of the CGT will be due on the filing date for the return, which is generally within 30 days of the day after the date the property sale is completed.
The payment on account required is the amount of CGT notionally chargeable at the filing date. This is the tax that would be due if, under the normal rules for calculating chargeable gains for a tax year, the tax year ended at the time the disposal is completed.
In calculating the amount, any unused allowable losses for capital gains purposes incurred by the time the disposal is completed can be used. Available reliefs and the annual exempt amount are applied in the normal way.
The amount of CGT payable on account is the amount after applying the applicable rate of tax to the net gain.
Where there is more than one residential property disposal in the same tax year, the amount of CGT notionally chargeable must be calculated after each disposal.
This is, however, done by taking into account that all of the gains (or losses) on those disposals are taken into consideration and any new losses that have arisen on disposals of other assets can also be used.
Where there has been a previous return and payment on account for the tax year and the amount notionally chargeable contained in a later return is more than the amount of tax already paid on account, the difference is payable to HMRC.
Since the 30-day payment window can make it difficult for some people to provide exact figures, HMRC allow for certain estimates and assumptions to be made.
The taxpayer can make a correction once the exact figures are known.
If the resulting amount is higher than the amount previously paid, the difference becomes payable to HMRC and interest may be due. No penalty will however, be charged.
If the amount is lower, the difference becomes repayable along with repayment interest from HMRC.
HMRC are currently developing a new online service to allow taxpayers to report and pay any CGT owed.