Capital Gains Tax 60 day rule explained: When to report a property sale to HMRC

From 6 April 2020, HMRC introduced radical changes to the disposals of UK residential properties for UK residents, meaning individuals (including trustees and personal representatives), have a revised short deadline to report and make a payment on account of any Capital Gains Tax (CGT) due to HMRC.

A property return will be required to be submitted to HMRC within 60 days for sales completing on or after 27 October 2021 (30 days for completion before this date). This is a huge change considering the disposal would have previously been declared solely on the tax return which could have been up to 22 months after the date of completion.

Which types of property are affected by the residential property return?

This change only applies to UK residential property. Here are some examples of the types of property impacted:

• UK holiday homes
• Buy-to-lets
• Furnished holiday lets
• Farm cottages
• Rental properties (where you have not occupied the property for full period of ownership)
• Private residences (where you have not occupied the property for full period of ownership)

The change does not apply to other chargeable disposals such as:

• Land
• Commercial property
• Other non-residential property
• Overseas residential property

Any disposal not giving rise to a CGT liability gain, i.e. the sale of a property covered by Principal Private Residence relief in full, or within the annual exemption, will not need to be reported under this new system.

Examples of mixed-use assets

The disposal of mixed-use assets will need to be split out to determine the different chargeable elements and how each of these will be reported by the appropriate deadline.

Here are some examples that illustrate how different properties could be split out:

• Shop (ground floor element of sale) – not a residential property meaning it’s declared and taxed through the annual tax return with the deadline being 31 January following the end of the appropriate tax year. This may qualify for Business Asset Disposal Relief if it meets the specific criteria
• Flat (second floor element of sale) – this is a residential property and assuming there is a chargeable gain arising this would be subject to the new rules meaning this element of the disposal would have to be reported, and any tax paid at the relevant prevailing CGT rate within 30 days
• Main Farmhouse – covered 100% by Principle Private Residence (PPR) relief (assumed owner occupied) so no tax liability arising and therefore reported only on the tax return
• Farm Cottage – this would not be covered by any PPR relief and would be subject to the new rules meaning this element of the disposal would have to be reported, and any tax paid, within 60 days
• Land – the asset is not subject to the new rules so the capital gain will be calculated and reported, with any tax payable, through the tax return.

The above examples help to illustrate the potential timing and cash flow issues as one element of the disposal will be declared and paid within 60 days, and the remaining chargeable assets then declared and balanced out at a potentially much later date via the tax return.

Additional factors – CGT reference number

There are a number of additional factors that need to be considered when dealing with these new rules, including the interaction of capital losses and the need for valuations.

One area that has been an issue to date is the initial process to obtain a CGT reference number. A return cannot be filed, and an agent cannot be authorised to assist with this matter until the reference is issued. The reference must be obtained by the taxpayer online and there are several steps in the process. Although Old Mill isn’t able to do this directly as an agent, we have been able to help individuals to guide them through.

How is Principle Private Residence relief affected?

Additionally, from 6 April 2020, HMRC have also revised the availability of Principle Private Residence relief:

• the final period has been reduced from 18 months down to nine months
• Lettings Relief has been restricted so it will only apply if the letting was undertaken whilst the owner(s) were living in the property. This is unlikely to be many cases.

These two changes can substantially change the amount of CGT due on a transaction and the removal of Lettings Relief can cost an individual up to £11,200 before the loss of nine months Private Residence Relief.

Due to the significant impact of these new rules, it’s important to seek advice to establish the tax position as early as possible, to ensure you are in the best financial position and that any deadlines set by HMRC are met.

If you are considering selling, or are currently in the process of selling, UK residential property (including as part of a larger sale) and have any queries as to your position, Old Mill has a dedicated team that are happy to help.