Missed a capital gains tax return?

Until 5 April this year, the sale of residential property was reported through an annual tax return. Capital gains tax was paid by 31 January following the end of the tax year, giving up to 22 months for the tax to be paid. However, since 6 April 2020, a sale of a residential property, on which tax is due, has to be reported to HM Revenue & Customs and the tax paid within 30 days of completion.

So far, a lot of people are unaware of this new requirement and will have, unfortunately, incurred late filing penalties. These start at £100 for filing a day late and can shoot up to £10 per day once the return is 3 months late.

When these new rules came in during April, in the middle of the first lockdown, HMRC gave a period of grace and waived penalties until the end of July; as that period has now expired penalties are being charged.

The rules apply to trusts and estates too, so if you are a trustee or executor of, perhaps, a family member’s estate, and sell a residential property, then you must report and pay the tax within 30 days.

People might expect their home to be exempt from these rules but that isn’t always the case. If your home sits on over 1.2 acres of land, part has been used solely for business or has been let, then there might be capital gains tax to pay. If you sell an inherited property, an investment property or a second home, often this results in a tax bill.

There are situations where people may not expect there to be capital gains tax due; such as gifting a property to their children. The gift means that, for capital gains tax, you are deemed to have received the market value for the property and have to pay tax on that basis. If tax is due, then this still needs to be reported and paid within the 30 day limit.

An accountant can prepare and submit the return for you but will need information to do so; the calculation of the gain is not always straight forward so the more you can provide, the better. Details of the purchase and sale of the property; the completion statements your solicitor provides; along with any dates which the property was your main home. Improvements can be deducted from the taxable gain but this can be a tricky area to get right.

Speaking to your accountant early, perhaps even before instructing an estate agent, can be a good idea!

Ben Branson CTA FMAAT TEP is a tax manager within the Tax Team at  A C Mole & Sons Taunton office. He can be contacted on 01823 624450 or BBranson@acmole.co.uk.