If you're disposing of a residential property in the UK that isn't your main home, it's crucial you understand and comply with the government's 60-day reporting rule for Capital Gains Tax (CGT).
In this guide, we'll explain everything you need to know.
What is the 60-day rule?
In April 2020, the government introduced a requirement to report and pay Capital Gains Tax on any disposal of UK residential property. According to HMRC, disposals occur when a person sells an asset or gives it away. This covers scenarios such as sales, exchanges, transfers into trusts, gifts (for example, gifting property to your children), and more.
You have heard of this rule referred to as the "CGT 30-Day Rule". This is because, up until October 2021, disposals had to be reported and CGT (if due) paid within 30 days of completion. In October 2021, the time frame was extended to 60 days, allowing sellers more time to get sorted.
So, in short: If you dispose of (i.e. sell, gift, or transfer) a residential property that isn't your main home, you are required to report the gain (or loss) you've made to HMRC and pay any CGT that is owed within 60 days of the disposal.
Do I need to report my disposal?
There are a number of exceptions to the 60-day rule, so not everyone needs to report a property disposal. Let's take a deeper look below.
First and foremost, if you're selling your main home and moving elsewhere, you don't pay tax. You will, generally speaking, qualify automatically for private residence relief (although there are some requirements which are worth reviewing).
However, you will need to report the disposal if the property is a:
- Second home
- Holiday home
- HMO (house of multiple occupants)
- 'Buy to let' or 'buy to sell' property
What if I'm not a UK resident?
Non-UK residents still have to report a residential property disposal to HMRC, even if there's no tax to pay, you don't make a profit, or you're already registered for self-assessment. The exact same rules apply, you need to report your disposal within 60 days.
How do I calculate the gain?
Calculating the gain on disposal proceeds is fairly simple. You can follow the rules below.
If you sold the property
- Subtract the price you paid for the property from the amount you received in the sale.
- Then subtract any allowance expenses, like costs associated with selling the property (such as solicitor and estate agent fees) or improvement works (such as adding an extension).
- Subtract your annual capital gains tax-free allowance (£6,000), if you haven't already used up the allowance on another transaction.
- Whatever is left is your gain.
- CGT is payable at 18% on your gain if you're a basic rate taxpayer, and at 28% if you're a higher or additional rate taxpayer.
If you gifted the property
- Subtract the price you paid for the property from a fair market value.
- Then subtract any allowable expenses, like costs associated with gifting the property or improvement works.
- Subtract your annual capital gains tax-free allowance (£6,000), if you haven't already used up the allowance on another transaction.
- Whatever is left is your gain.
- CGT is payable at 18% on your gain if you're a basic rate taxpayer, and at 28% if you're a higher or additional rate taxpayer.
This use of a fair market value can also apply if you inherited the property, have sold it for less than it's worth to aid the buyer, or owned the property before April 1982.
How do I report the gain and pay my bill?
If you haven't already done so, you'll need to register for HMRC's online services by creating a Government Gateway account. You can do this on the HMRC website, or get in touch with our tax team and we will be able to assist with the submission of your return.
Do I need to file a self-assessment tax return too?
It depends. If you usually complete a self-assessment return each tax year, you must also declare your disposal and gains in your self-assessment forms, in addition to the CGT return described above.
However, if you do not usually complete a self-assessment, and you have no need to, other than for the disposal of a property, then you do not need to worry about submitting a self-assessment as long as you complete the CGT return within the 60-day period.
What happens if I miss the 60-day deadline?
Despite the CGT 30-day rule being extended to a 60-day rule, up to 20% of property sellers still miss the deadline. This could be due to not knowing there is a requirement to report or it could be an error – regardless, doing so comes with several repercussions, and you may need to seek professional advice.
If you fail to report the capital gain within the 30-day timeframe, you should still submit the report as soon as possible. Late reporting will result in fixed penalties, but it's better to report late than not report at all (and the longer you delay, the bigger the penalty).
If you miss the 30-day deadline for paying the CGT, you may be liable for interest charges on the outstanding amount. The interest will accrue from the deadline date until the payment is made.
In certain circumstances, you may be able to appeal against penalties or request mitigation if there are valid reasons for the delay. Valid reasons might include serious illness, bereavement, or other exceptional circumstances. It's crucial to provide evidence and explanations to support your appeal or request for mitigation.
If you repeatedly miss deadlines or fail to comply, it can result in more severe penalties and potential investigations by HMRC.
When does the 60-day period start?
The 60-day period begins on the completion date, i.e. when the legal transfer of ownership occurs. It's important to keep accurate records of the completion date as it will be used to determine the deadline to report capital gains.
Summary and key takeaways
Hopefully, you now have a much clearer understanding of HMRC's 60-day CGT reporting rule for UK residential properties. While it can seem complex at first, the reporting is a fairly simple process which can be done online, but it's important you know what to do, and when, so you don't fall foul of the rules and incur a penalty.
If you need any help with capital gain tax or the disposal of a UK property, please get in touch with our friendly team to organise a free consultation with a tax adviser.
Key takeaways:
- The UK government's 60-day reporting rule for Capital Gains Tax (CGT) requires individuals to report and pay CGT within 60 days of disposing of a residential property that is not their main home.
- Exceptions to the 60-day rule include the sale of a main home when moving elsewhere, but reporting is required for second homes, holiday homes, HMOs, and buy-to-let or buy-to-sell properties.
- Non-UK residents must also report residential property disposals to HMRC within 60 days, even if there is no tax to pay or no profit made.
- Calculating the gain on disposal involves subtracting the price paid for the property from the sale proceeds or fair market value, deducting allowable expenses and the annual tax-free allowance, and applying the appropriate CGT rate based on the taxpayer's income level.
- Reporting the gain and paying the tax bill can be done online through HMRC's online services, and it is important to keep thorough records of the disposal for future tax assessments and compliance evidence. Self-assessment may be required depending on the individual's usual tax obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
