Capital Gains Tax when selling residential property

Over the past few years, the Government has made changes to the tax system to make the investment in residential property less attractive.

These changes include restricting the tax relief on mortgage interest, reducing the availability of Principal Private Residence Relief and Lettings Relief, increasing the Stamp Duty Land Tax when purchasing an additional property, and reducing the time which any Capital Gains Tax is paid on the sale of property.

Residential Property Returns

From April 2020, new rules to report residential property disposals were introduced by the Government. These rules meant that any disposals of residential property which generated a CGT liability needed to be reported and the tax paid within 30 days of completion. This was a significant reduction from the potential 22 months under the previous rules.

However, it was recognised that 30 days was a very short timescale and on 27 October 2021 the time limit was extended to 60 days from the date of completion. Usually, Capital Gains Tax is payable based on the date of exchange rather than completion.

Who is affected by this?

The following are subject to these reporting requirements:

• Individuals, including Joint owners
• Trustees
• Personal representatives
• Partners in a partnership (including limited liability partnerships)

What Property is affected?

A sale or gift of any residential property is potentially affected by these reporting requirements. The main types of properties which are likely to require a Residential Property Return to be required are:

• A property that has only been lived in for part of the period of ownership
• Rental properties
• Holiday homes

Exemptions

The following disposals/gifts may not require a 60-day return to be completed:

• A gain which is covered by exemptions or reliefs, so no Capital Gains Tax is payable.
• A property sold at a loss
• Transfers between spouses/civil partners

Generally, these are disposals/gifts which do not result in any Capital Gains Tax liability, but apart from a gift to spouse, calculations must be undertaken within the 60-day time period. Sometimes these calculations can be complex.

Planning

Please get in touch before disposing of a residential property, particularly if it falls into one of the categories above, to determine whether a 60-day Capital Gains Tax return is required.

Provide all the information to your adviser so they can prepare calculations to indicate what liability may arise. This should help you plan your cashflow.

Having more time available should enable your adviser to consider whether any pre-sale planning could be undertaken to reduce the Capital Gains Tax liability.