The UK property capital gains tax (“CGT”) reporting regime has been with us for a considerable time now (since 6 April 2015 for non-UK tax residents and 6 April 2020 for UK residents).  Various changes have been made over the years and this article summarises the current state of play.

The reporting requirements differ for UK residents and non-UK tax residents as follows:

*Note - this includes:

1. residential and non-residential UK property or land
2. mixed use UK property or land, and
3. rights to assets that derive at least 75% of their value from UK land (known as indirect disposals) where you have at least a 25% interest in that asset (e.g. shares in a UK ‘property rich’ company).  Partnerships are ‘look through’ for tax purposes therefore if a partner in a partnership is entitled to a share of capital profits on disposal of a UK property this will also be reportable.

For both non-UK tax residents and UK residents, where they are already within the Self Assessment regime the gain or loss needs to be reported again on the annual Self Assessment (“SA”) tax return.

Calculating the gain for non-UK tax residents can be more complex due to there being various alternative methods that can be used.   

CGT rates applying to property disposals

Property disposals for the purpose of CGT, can include gifts or transfers of properties at less than open ‘Market Value’. For example, a gift of a property to a family member for no cost or at undervalue is a disposal for CGT purposes.

The rate of CGT payable on the disposal of residential property in the UK is currently 18% (basic rate taxpayer) or 28% (higher rate taxpayer) with the rate being determined by the individual taxpayer’s taxable income and the date of disposal. The reason here being that the gain is effectively treated as the top slice of income and other income may use up part or all of the basic rate band. For individuals tax resident in Scotland or Wales, it is worth noting here that the ‘rest of UK’ basic rate band applies for capital gains, which is £37,700 for each of the tax years 2022/23 and 2023/24. 

It may be necessary to apportion the gain between the element that is chargeable to CGT at residential rates and the element that is not, if at any time during ownership the property has been:

• your principal private residence (your home) for only part of the time;
• an area of the property was used solely for business purposes;
• the property was ‘inhabitable’ (derelict) for a period of time;
• the land once included a residential property. 

In addition, if the owner has carried out capital improvements to a property, it is important to hold on to details of the costs incurred and associated work carried out, as this expenditure may reduce the overall gain further. For improvements to be allowable it is a condition that these enhance the value of the property and general repairs to the property would not be included as part of the capital cost.    

For those who are ‘digitally excluded’ and unable to engage with HMRC online it can be possible to file a ‘paper’ CGT return. However, the process of submitting a paper return can be more time consuming from both the taxpayer’s and HMRC’s perspective. HMRC has commented that the online reporting is the most efficient and preferred method for reporting and taxpayers should contact them if they are experiencing issues registering. HMRC has stressed that the paper return is only there for those who have genuinely experienced issues or barriers with the online reporting and HMRC can impose penalties where returns are submitted late.   

Penalties and interest for failure to report and pay CGT on UK property disposals

HMRC’s stance on penalties has become much more rigid and we are seeing more penalties being issued for late submission of these returns.

The late filing penalties are similar to other HMRC penalty regimes for late filing:

• £100 late filing penalty will apply if the return is not submitted within 60 days from the date of completion of the disposal.
• Further late filing penalty of the higher of £300 or 5% of the tax due will apply if the return is still outstanding after 6 months from the date of completion.
• Further late filing penalty of the higher of £300 or 5% of the tax due will apply if the return is still outstanding after 12 months from the date of completion.

Interest will accrue if the CGT remains unpaid after due date. Late payment penalties may also apply if unpaid by the due date.

CGT Annual Exemption

The CGT annual exemption, which was £12,300 for 2022/23 is only £6,000 for 2023/24 and £3,000 for 2024/25, thenet effect of this could be that we will see more taxpayers with ‘taxable’ gains in excess of the reduced annual exemption and so a CGT reporting requirement.

Got a question?

If you would like to discuss any aspect of the above, please don't hesitate to contact me at roger.campbell@jcca.co.uk or your usual Johnston Carmichael contact.