Capital Gains Tax reporting for sale of U.K. residential property.
In April 2020, the UK updated its rules on the reporting of Capital Gains Tax on the sale of UK residential property. Here is a quick guide to these updated rules as they apply to individuals.
CGT reporting is different for residents and non-residents
If you are not a UK resident then you must report the sale of any UK property online and pay the CGT due within 30 days. This applies both to residential and non-residential UK property.
If you are a UK resident then further tests apply before you decide whether or not you need to report the sale for CGT.
Please note that the criteria for CGT liability are based on residence, not citizenship. In other words, non-residents would need to declare all sales of UK property even if they were UK nationals. By contrast, non-UK-nationals resident in the UK would apply the same liability tests as UK nationals who live in the UK.
CGT is only applicable on gains above your annual exemption
For the tax year 2021-2022, individuals have an annual CGT exemption of £12,300. This is forecast to remain the same up to and including the tax year 2025-2026. Obviously, however, there is no guarantee of this so you should always check.
This allowance is per person so if a residential property was owned jointly, the potential CGT exemption would be £24,600.
If your overall capital gains are below this then you do not have to report them regardless of circumstances. If they are above this, but from residential property, a further test must be applied.
If you sell your main home, you can claim Private Residence Relief
Regardless of how many homes you own, you can only class one of them as your main residence. You can therefore only claim private residence relief on your main home.
If you are informally cohabiting then each half of a couple can have an individual main residence. If, however, you are married or in a civil partnership, then the couple can only have one main residence.
The government has a PRR calculator you can use to calculate how much PRR you can claim. As the rules currently stand, you can claim 100% relief (i.e. pay no CGT) provided that you meet two conditions. Firstly, you have to have lived in the property as your main residence up to the point when you sell it. Secondly, you must not have used it for commercial purposes.
If you have done either of the above then you may still qualify for PRR but it will be at a reduced rate.
PRR when you move out
In general, you get full PRR for the time you lived in the property plus nine months. If you sell the property after that time then your PRR is calculated as a percentage of the occupancy period plus nine months. This applies regardless of whether or not the property is occupied or empty.
There are, however, some exemptions to this rule. For example, if you’re disabled or go into long-term residential care, then you may be able to claim full PRR for up to 36 months after moving out.
So, for example, if you own a house for five years but only live in it for two, you will qualify for PRR for a total of 33 months out of 60. That means you qualify for PRR on 55% of the gains. You can use your annual exemption towards the rest.
PRR and lettings relief
If you live with tenants then you can still claim PRR but only on your portion of the house. For example, if you let out a spare bedroom which accounts for 10% of your home, then your PRR is reduced to 90%. The remaining 10% is liable for CGT but you still get your annual exemption.
A word of warning
HMRC expects you to sell your assets for a fair market price. If you sell at a price below HMRC’s expectations then the onus will be on you to show that you did everything possible to achieve the maximum value for your asset. If you do not then you may find yourself paying tax on the expected value rather than the achieved value.
Keep this in mind if you are thinking about making a “discounted” sale, perhaps to a relative or friend. It may be best to get professional advice first.
If you find that the sale of a residential property does make you liable for CGT then you need to report this online to HMRC and pay the amount due within 30 days of completion of the sale. If you are in self-assessment you will also need to include the gain on your self-assessment form but you will only be charged for it once.