You cannot leave reporting matters and paying the capital gain tax, if any, until after the end of the tax year when you would normally complete your Self-Assessment Tax Return and then pay the tax months later.
Previous system of reporting and paying tax
Until 5 April 2020, if an individual sold a UK residential property and made a profit, with capital gain tax due, they just had to complete a Self Assessment Tax Return.
In some instances where no capital gains tax (CGT) is actually due on a property sale an individual must still report the sale on a Self Assessment Tax Return. For example, if the proceeds from the sale of a property is greater than four times the current annual CGT exemption of £12,300 in 2022-23 then the gain or loss must still be reported to H M Revenue & Customs (HMRC). This is most probably to enable HMRC to match up sales of properties filed at the Land Registry to the declaration on Tax Returns of sales and potential CGT due by individuals.
Any gain that was made between 6 April, at the start of the tax year, and 5 April, at the end of the tax year, was solely reported on a Self Assessment Tax Return. Any tax due was paid by 31 January following the end of the tax year. Therefore, if an individual sold a property on 6 April 2019 they would have until 31 January 2021 to file a Tax Return and pay the required tax. For individuals, CGT is paid anywhere between 10 months and 22 months after the date of property sale.
New system of reporting and paying tax
From 6 April 2020, where CGT is due on the sale of UK residential property by a UK resident individual or trustee, a new standalone online ‘real time’ return will need to be filed, together with payment on account of the CGT, within 30 days of the date of completion of the transaction if the completion date was between 6 April 2020 and 26 October 2021. If the completion date is on or after 27 October 2021 then a return and payment of tax is due within 60 days of selling the property.
An individual can use the new UK Property Reporting Service as soon as they have calculated the gain and calculated any resultant tax due. They do not need to wait until the end of the tax year on 5 April, or even to the 31 January following this date
An individual will need to upload a formal CGT Calculation, via a PDF or JPG file, showing how the capital gains and CGT are calculated.
After they have reported the gain, HMRC will provide a tax payment reference number and tell them how to pay the CGT e.g. online bank payment or credit card. This detail is provided automatically after submitting the online CGT UK Property Disposal Return through an online Capital Gains Tax UK Property Account.
A paper-based CGT UK Property Disposal Return can be completed for the digitally excluded. Once the Return has been processed by HMRC they will provide the relevant reference. It could take several weeks or months for HMRC to process the paperwork and write back with the reference. No interest or penalties would apply whilst waiting for the reference number.
The capital gains must still be shown on a Self Assessment Tax Return at the end of the tax year. There will be a specific place on the Tax Return to disclose these real time gains. This is to distinguish ‘real time’ capital gains, that have already been previously reported and tax paid, from other capital gains in the tax year.
HMRC has published detailed guidance as an appendix to its CGT manual.
Completion date verses exchange of contracts date
The trigger date for CGT calculations and Self Assessment purposes is the actual date when contracts are exchanged, not at the later date when matters are formally completed. This determines which tax year the gain arose in and the year it must be shown on a Tax Return.
However, a real time return (not a Self Assessment Tax Return) must be made within 60 days of the date of disposal, i.e. using the completion date of the sale rather than the date when contracts were exchanged, as the trigger date.
It is quite possible to exchange contracts in February 2022 but to complete in April 2022. As contracts are exchanged in February 2022 this results in a capital gain and potential CGT to pay and report on a Self Assessment Tax Return for 2021-22. However, within 60 days of the completion date, a real time CGT report must be filed and any tax due paid.
When not to report under the real time CGT system
No real time returns are required for no gain/no loss sales, e.g. sales between spouses, and for sales where no tax is due, e.g. the gain is covered by the annual CGT exemption or losses brought forward.
You only need to report a gain within 60 days if there is CGT to pay. Therefore, no report is required if the gain liable to tax is less than your capital gains annual exemption, of £12,300 in 2022/23. The actual gain is reduced by any CGT reliefs you are entitled to e.g. Private Residence Relief (PRR) or Letting Relief. If a property has always been your only or main residence then the PRR will reduce the gain to nil and therefore no report or tax will be required.
The return must include information relating to property address, dates of purchase and sale, purchase price, gross sales proceeds, costs of purchase and sale, to be specified separately and a declaration by the individual making it that the return is to the best of the person’s knowledge correct and complete.
The Self-Assessment Tax Return exception
If you make a gain from the sale of a property where CGT is payable, and which is reportable within 60 days, but you have already declared the gain on your Self-Assessment Tax Return and paid the CGT, there is no requirement to use the above mentioned 60-day reporting procedure.
Therefore, no report would be required if you exchanged contracts in March 2022, completed on 1 May 2022 and submitted your Self-Assessment Tax Return for 2021/22 on 15 May, with payment of the resultant tax on the same day. The 30-day deadline falls on 31 May 2022 i.e. 60 days after the property sale was completed.
CGT can still be payable if you give away or sell a property at a price less than its market value e.g. if you gift a property, or a share in a property to a close family member like a son or daughter. You must calculate the gain by comparing the current market value with the original cost. The current market value is substituted for the actual sale proceeds when the sale/gift/disposal in not made at a commercial arm's length value. However, this rule does not apply to a gift or sale at undervalue to your spouse or civil partner.
Problems making the reports
The UK property reporting system is not working properly, with the HMRC website reporting "we are experiencing technical difficulties." This error may arise due to taxpayers' addresses being entered incorrect on the HMRC system.
If you have already filed your Self Assessment Tax Return, and need to file a Property Return, you may not be able to report using the HMRC online system. This is because the Property Return must be filed before the Self Assessment Tax Return.
The way around this is to file a paper form (PPDCGT) which can only be obtained by telephoning or writing to HMRC to request one. You then have to wait [months] for the form to be processed before you have a reference number to pay the tax, which should also have been paid with 60 days of exchange of properties.
Penalties
You have 60 days from the date of completion to report your disposal and pay any tax due. You will receive a late filing penalty and be charged interest if you do not do this on time.
If you miss the deadline by:
One day late: £100
Over three months late: £10 per day up to 90 days
Over six months late: greater of £300 and 5% of tax due
Over 12 months late: greater of £300 and 5% of tax due.
Taxpayers who are more than 12 months late with their UK property returns will have a penalty liability of at least £1,600 each.
In a recent HMRC report, almost 20% of taxpayers with gains to declare from UK residential property failed to report and pay the capital gains tax on time in 2021/22.
I think that most of these penalties can be blamed on HMRC, who provided minimum publicity and little detailed guidance about the new CGT reporting system.