Payment of capital gains tax on property sales cut to 30 days

Sian Hiatt, Sales Manager at CPS HomesSian Hiatt, Sales Manager, explains the new changes HMRC are introducing to the payment deadline of Capital Gains Tax following the sale of a property...

Those who are looking to sell a property should be aware that they will have just 30 days to pay any required capital gains tax (CGT) bill as HM Revenue & Customs (HMRC) announced a drastic cut from the current near two-year deadline.

HMRC confirmed that the new 30-day deadline for paying CGT following the sale of a residential property in the UK will come into effect as of April 6th, 2020.

From this date onwards, landlords and those who own a second home or holiday home and decide to sell their properties will have 30 calendar days to notify HMRC about the property sale and make any necessary CGT payment.

Failure to follow this requirement will result in a penalty charge plus interest on the amount that is owed:

  • Up to 6 months, a penalty charge of £100
  • Over 6 months, a penalty charge of £300 or 5% of tax due (whichever is greater)
  • Over 12 months, a further penalty charge of £300 or 5% of tax due (whichever is greater)

Until April 5th, 2020, property sellers will have until January 31st, 2022 (the self-assessment tax return deadline) to pay their CGT bill, which is a total time frame of 22 months.

For property sales that complete on or after April 6th, 2020, CGT bills must be paid within 30 days to avoid the penalty charges.

This makes it clear to see just how big the new change will be to the current payment window. Rachael Griffin, tax and financial planning expert at Quilter, states that the new 30-day time frame doesn’t give people a great deal of time to settle their CGT bill following the sale of a property - a process that can already be stressful and complex enough as it is.

She claims that anyone who owns more than one property will need to make sure they are fully prepared for any liquidity issues that may appear following the reduction in time to pay the CGT bill. Those who are selling a property must take into account all of the fees and charges that they will have to pay to solicitors, estate agents and the like, so that they know they are in a position to have enough funds to cover the CGT tax bill immediately following the sale.

Griffin also highlights the fact it may impact those looking to reinvest the sale proceeds as funds will now have to be earmarked for the tax charge, as opposed to addressing the bill over a year later.

The new rules will only apply to the sale of residential property in the UK and do not apply to any other assets, such as shares or the sale of personal possessions.

When must you report and pay capital gains tax?

Everybody is entitled to an annual tax-free allowance which currently stands at £12,000 (£6,000 for trusts). CGT only needs to be paid on any profit that sits above this threshold.

CGT will be applied when somebody sells or disposes of the following:

  • A property that hasn’t been used as a main home
  • A holiday home
  • A property that is let out for others to live in
  • A property that has been inherited and not used as a main home
  • If you sell or dispose of a property that you have joint ownership with, you will be liable to pay CGT on your share of the gain.

Basic rate taxpayers pay 18% on gains from a residential property (or 28% depending on the size of the gain, your taxable income and amount above the basic rate) while higher rate taxpayers pay 28%.

There are times when a property seller won’t need to make a report or payment within 30 days.

HMRC say that this will only be the case if:

  • A legally binding contract for the sale was completed before April 6th, 2020
  • Sellers meet the criteria for Private Residence Relief
  • The sale was made to a civil partner or spouse
  • The gains are within the annual tax-free allowance threshold
  • The property was sold at a loss
  • The property is located outside the UK.

HMRC have announced that they will be launching a new online service making it easy for sellers to report and pay any CGT that are owed.

Whether you’re looking to sell, buy or rent a property in Cardiff, our expert team at CPS homes are here to help. With extensive knowledge of the city you can be sure of the best advice every step of the way. Contact us by calling 02920 668585, e-mailing or by popping into one of our three Cardiff branches.

01 April 2020


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