Real-time capital gains tax reporting for residential property sales from 6 April 2020
Watch out from 6 April 2020 if you sell a property and make a gain. You cannot leave reporting matters and paying the tax to the end of the tax year.
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 PDF or JPG file showing how the capital gains and CGT are calculated. In other words, a formal CGT calculation must be prepared and filed.
After they have reported the gain, HMRC will send them a letter or email giving them a payment reference number and telling them how to pay the CGT.
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 and not 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. The return must include information 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.
Help from an accountant
At the time of writing there is no facility for accountants, as tax agents, to submit a real-time return on behalf of their clients. This is because the reporting service is only available to individuals through their own personal tax accounts (PTA) through the Government Gateway service.
It is expected that clients would require the services of an accountant to calculate the capital gain, any resultant CGT due, prepare a formal CGT calculation and possibly then to assist the client in making the real time return.
HMRC and professional accounting bodies are not keen on clients giving their personal username and password to anybody else. The current system also requires two-tier authentication where a one-time code is sent by a SMS text, voice call or through an app. Logistically, this makes it difficult for accountants to assist their clients unless they are in close proximity and possibly sitting at the same computer.