Capital gains tax on residential property – the 30-day rule

Capital gains tax (CGT) on property is charged at different rates and for residential property, it is now a requirement to report and pay any taxable gains within 30 days of the completion of a sale

CGT is potentially payable on any gain made from the disposal of a property. As well as a sale, disposals can also mean gifting a property or transferring it to someone else, other than a spouse or civil partner. You generally do not need to pay this on your own home (unless you have rented it out or other conditions apply) and an annual allowance (£12,300 for the tax years 2020/21 and 2021/22) may also apply for UK residents.

Examples of property that is liable for CGT include the sale of commercial property, residential buy to let property, the sale of second homes or holiday homes. You may also be liable if you use part of your own home commercially or let part of it out.

For UK residential property, any taxable gains must now be reported and paid to HMRC within 30 days of the completion of the sale.

30-day capital gains tax payment warning

For UK residential properties sold on or after 6 April 2020, CGT needs to be reported to HMRC and paid within 30 days of completion of a sale. Failure to do so may lead to penalties and interest charges.

For disposals before this date, any capital gains should have been reported in an annual self assessment tax return, the latest should have been reported in a 2019/20 self assessment, which was due on 31 January 2021.

Many sellers and their legal advisers appear to be unaware of this rule change. We are seeing many case of individuals who contact us retrospectively on this matter, who have been subjected to late filing penalties.

For those who are required to report a capital gain within 30 days of a sale, they are also subsequently required to submit a self assessment tax return for the year in which the sale occurred. Essentially the initial payment is a payment on account and the subsequent self assessment tax return ensures the correct amount of tax has been paid in the tax year.

Paying capital gains tax on property

The rate of CGT on property is higher than you would pay on other assets. Higher rate and additional rate taxpayers are liable at 28%, while basic rate taxpayers are liable at 18% (and then 28% for any gain that takes them above the basic rate band).

What is the capital gains annual allowance?

Most UK taxpayers have a capital gains annual allowance, meaning they can usually earn a certain amount free from CGT.

For both the 2020/21 and 2021/22 tax years this is £12,300, meaning you can make gains of up to £12,300 from the disposal of assets, before being liable to pay CGT. Married couples and civil partners who jointly own assets can each use their allowance, potentially allowing for tax-free gains of £24,600.

If you have already disposed of any other assets liable for CGT in the same tax year as you dispose of a property, this is likely to reduce the remaining annual allowance available to be offset against a capital gain arising from the subsequent disposal.

Capital gains tax on second homes

When a second home is sold, it will usually be liable for CGT. You may be able to claim relief if the property was once your main residence, however, this could also affect the tax liability of your current main residence. In this situation, professional advice should be sought on what you can elect as your main residence, as this could affect your tax liability.

Calculating capital gains tax on property

Before you can report a capital gain, you will need to calculate it. This will require the following for each property:

• confirmation of the purchase price and sale price;
• the dates in which you purchased and disposed of the asset(s);
• any allowable costs, such as renovation works, stamp duty, legal and other professional fees associated with the sale and disposal; and
• confirmation of any applicable tax reliefs you are eligible for.

Reporting a capital gain on residential property to HMRC

You will need to sign up for HMRC online services to report the gain. This is free and you can set an account up here.

If the property was sold on or after 6 April 2020, the gain needs to be reported and paid to HMRC within 30 days of completion of the sale.

Where residential property was sold before 6 April 2020, this should have been reported at the latest in your 2019/20 tax return, which was due on 31 January 2021. If this is still outstanding, you should file this as soon as possible, as the penalties and fines for late payment can be substantial.

Reporting and paying a capital gain if you are not a UK resident

If you are not a UK resident, the sale of all UK property must be reported to HMRC within 30 days, even if there is no tax to pay. If tax is due, this should be paid within 30 days also.

Contact us if you need advice on capital gains tax