Real-time capital gains tax reporting for residential property sales after 5 April 2020
Updated: Feb 13
From 6 April 2020, watch out if you sell a property and make a capital gain. You cannot leave reporting matters and paying the tax 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.
Current system of reporting and paying tax
Currently, if an individual sells a UK residential property and makes a profit with tax due than they are required 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 £12,000 in 2019-20 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 is made between 6 April, at the start of the tax year, and 5 April, at the end of the tax year, is reported on a Self Assessment Tax Return. Any tax due is payable 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.
An individual can use the new 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.
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 30 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 2021 but to complete in April 2021. As contracts are exchanged in February 2021 this results in a capital gain and potential CGT to pay and report on a Self Assessment Tax Return for 2020-21. However, within 30 days of the completion date, a real time CGT report must be filed and any tax due paid.
For the avoidance of any doubt, HMRC have confirmed that the new reporting and payment regime applies only to taxable gains due on sales of UK residential property made on or after 6 April 2020 (in the tax year 2020/21). This means that where contracts are exchanged under an unconditional contract in the tax year 2019/20 (6 April 2019 to 5 April 2020) but completion takes place on or after 6 April 2020 the 30 days filing requirement does not apply. The gain should be reported in the 2019/20 self-assessment return in the usual way.
Emma is a UK resident individual. She exchanges contracts for the sale of her buy-to-let property under an unconditional contract on 30 March 2020. Completion takes place on 15 April 2020. The gain resulting from the property sale should be included on Emma’s Self Assessment Tax Return for 2019-20. The requirement to file a separate online real time return within 30 days of completion does not apply because the sale was made in 2019/20 before the new reporting requirements took effect.
If, however, exchange of contracts takes place on or after 6 April 2020, or the contract is conditional and the condition is not satisfied until after 6 April 2020, Emma will be required to make a return to HMRC within 30 days of completion of the sale together with a tax payment on account within the same 30 days’ timescale.
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 30 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 2020/21. 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 30 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 30-day reporting procedure.
Therefore, no report would be required if you exchanged contracts in March 2021, completed on 1 May 2021 and submitted your Self-Assessment Tax Return for 2020/21 on 15 May, with payment of the resultant tax on the same day. The 30-day deadline falls on 31 May 2021 i.e. 30 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.
You have 30 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:
up to 6 months, you will get a penalty of £100
more than 6 months, a further penalty of £300 or 5% of any tax due, whichever is greater
more than 12 months, a further penalty of £300 or 5% of any tax due, whichever is greater.