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Overhaul to Capital Gains Tax reporting on residential property for UK residents

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By Caroline Foulger

If you sell or give away assets like shares or property which is worth more than it was when you acquired it, Capital Gains Tax (CGT) may be due. At present, CGT must be paid anywhere between 22 months and 10 months after the disposal. From 6 April 2020, the payment time will be shortened quite considerably.

Where CGT is due on residential property disposals, a return will need to be filed and the ‘notional CGT’ due must be paid within 30 days of the date of completion. Previously, this expedited deadline only applied to non-UK resident individuals disposing of UK property.

For UK resident individuals, a UK land return will need to be filed with HMRC where a disposal of residential property gives rise to a chargeable gain or an allowable loss.

Where a gain is fully covered by a relief (such as principal private residence relief), there will be no requirement to file a UK land return. If you are simply moving home, then you will probably not need to file a UK land return if the property has been your main residence for your entire period of ownership.

A return will also not be required where the gain is covered by the annual exemption, or a brought forward capital loss, from disposals on other assets in the previous four years.

In any other case, the 30 day deadline will apply. The requirement to complete a UK land return is therefore most likely apply to individuals who are private landlords on the sale of a rental property.

Of course, the quick turnaround time means that the exact details you need to complete the return may not be readily available. HMRC requires the taxpayer to make ‘reasonable estimates’ of the tax payable on the disposal as if the tax year ended on the date of disposal. Taxpayers will, therefore, have to estimate their income for the year so that the correct CGT rate (18% or 28%) may be applied, and also take into account any disposals of UK residential property which have already taken place. Gains on other assets are ignored in calculating the notional CGT due. Where an estimate changes, a further return may be filed correcting the estimate and, if appropriate, generating a repayment of tax. Interest and penalties will not apply if you have underpaid the tax due as a result of an incorrect estimate, provided you make the correction when the information is available.

Given the much tighter deadline for filing post transaction, it is advisable to take advice on Capital Gains Tax as early as possible during the sale process.

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