From the 6th April 2020 a significant change for owners of UK property came into force; from that date, all property disposals (subject to limited exceptions) must be declared to HMRC with an estimate of the tax due paid, within 30 days of completion.
What is this change?
Under the regime to 5th April 2020, UK residents had until the 31 January following the tax year in which the disposal occurred, to declare the position and pay the associated liability. This would have allowed taxpayers between 10 and 22 months to compute the position and given a clear cash flow advantage.
This onerous administrational requirement evens the position slightly between UK residents and non-UK residents, who have been required to report property sales within this time frame since 6th April 2015. However, there remains some significant changes in the reporting of these two schemes.
Property sales will still be required to be reported on a UK tax return, within the normal deadlines, however the new electronic submission form for sales by UK residents will impose a strict penalty regime of its own, similar to that of self-assessment.
With HMRC advertising of regime changes often limited and the focus currently on Covid-19 support measures, how many UK residents will be aware of this change? As non-UK residents who have accidentally failed to report sales will know too well, failure to submit the return by the time the tax return filing comes around, will see penalties for late submission.
Do all sales now need to be declared?
No, there are a number of exceptions which would see an owner not required to declare the disposal. These are;
1. Transfers between married couples,
2. Gifts to charity,
3. Gains covered entirely by Principal Private Residence (PPR) relief and lettings relief,
4. Gains covered by the annual exemption (which had not already been utilised by another property sale in that tax year)
5. Gains covered by losses that had already crystallised, and finally
6. Properties that make a genuine loss on sale (unless the taxpayer wishes to declare this in order to use the loss against a future property sale in the same year).
Please note that those shown in italics do not apply to disposals by Non-UK residents.
What practical considerations do I need to bear in mind?
• It is not just sales of property that need to be reported. Gifts of UK property will need to be reported also.
• Include ascertaining your tax position and establishing certain facts regarding the purchase, occupation dates and improvement costs long before the end sale. Selling a property is a stressful process, you do not want to add to that with an unexpected tax liability!
• The tax legislation on Principal Private Residence Relief and Letting relief also changed on the 6th April 2020. Click here for further information
• The tax due within the 30 day deadline is an estimate of the position. This will mean looking at, other property sales in the year, established losses, possibly reliefs and expected income levels to ascertain the position.
How we can assist
Whether you are UK resident or a non UK resident, British Taxpayers can give you an estimation of the tax that will be payable on sale. We can explain to you the process and ensure that, if we are aware of the sale, the submission will be made on time. If you are looking for further information on this please contact Zoe, Claire, or your member of the British Taxpayers team.