60-day Capital Gains Tax Reporting

As a property owner, it is important to be aware of the tax implications of disposing of your residential property.

The 60-day capital gains tax reporting requirement for residential property disposals is a crucial aspect of the tax system that all property owners should understand. It was implemented in 2020 (initially as a 30-day rule later relaxed to 60-day) and most people are not aware of this requirement.

In this article, we will provide a comprehensive overview of the 60-day capital gains tax reporting requirement and how it applies to residential property disposals. 

What is the 60-day Capital Gains Tax Reporting Requirement? 

The 60-day capital gains tax reporting requirement is a regulation that requires property owners to report the sale of their residential property to the HMRC within 60 days of the sale. They also need to pay the tax (or an estimate of that tax since in many instances the exact calculation can only be done after the tax is finished in April) at the end of this 60-Day period. This requirement applies to all individuals or trustees who sell UK residential property for a gain, regardless of the amount of the gain. If the sellers are non-UK residents they have the obligation to report even if they haven't made a gain which is not the case for UK residents. They also need to report any sale of UK land not just residential sales like UK residents. 

Major change: CGT on residential property sales

There were many changes with capital gains tax in the past few years but most changes only applied to non-resident landlords.

From 6 April 2020, when CGT is due on the disposal of residential property a return must be filed and "notional CGT" paid within 30 days of completion. This is a major change!

The changes

A number of fundamental changes in relation to capital gains tax are anticipated with effect from 6 April 2020 including:

• Reduction in final period exemption from 18 to 9 months
• Restriction of letting relief to periods of co-occupation between tenant and landlord
• Extension of PPR relief for certain inter-spouse transfers
• Reduced deadline for reporting capital gains and paying capital gains tax on sales of residential property

This article concerns the last of these changes.

What is the current position ?

Property owners will be used to having a minimum of 10 months and a maximum of 22 months between incurring a capital gain on the sale of a residential property and reporting the disposal to HMRC and paying the tax. This has been the case since self-assessment was introduced in 1997.

With effect from 6 April 2020, the deadline is shortened to just 30 days, which brings the regime into line with the deadlines which were introduced for non-residents selling residential property after 6 April 2015, and both residential and commercial property after 6 April 2019.

Who does this affect ?

The new rules affect UK resident individuals, trustees and personal representatives who sell or otherwise dispose of residential property. This article concentrates on disposals by individuals. The rules do not extend to disposals by limited companies.

Changes in off-plan treatment for PPR relief

Principal property relief (PPR) sometimes also called private residence relief (PRR) saw its usefulness seriously curtailed following a recent decision of the Upper Tribunal (UT) that overturned a First-tier Tribunal (FTT) ruling of 2017. The issue at stake is how to determine the date of acquisition of an off-plan property and the new ruling means that property owners should be very cautious when they purchase off-plan their principal residence.

PPR reduces any taxable capital gain on a property if the property has been used as a principal residence for part of its ownership. The case in question concerned the definition of ownership for the purpose of the relief. HMRC argued that the date of acquisition was the date when contracts were exchanged whereas the taxpayer argued it was the date when he was finally able to occupy the property, three years later. The FTT agreed with the taxpayer but HMRC appealed and the UT decided to side with HMRC.

The UT took the view that even though there was a period when the property was not even a dwelling, it was a chargeable asset nonetheless. As a matter of fact, the taxpayer had the right all along to sell the property and therefore there was no doubt that profit from such a sale would be taxable.

Now, not all is lost in case the delay in taking up occupation is less than a year (2 years at most in exceptional circumstances) thanks Extra Statutory Concession D49 that allows for relief in such a case. But caution should be exercised if you suspect there will be delays in construction as it will now most probably have negative tax implications for the homeowner upon resale.

I make no money: do I still need to file a tax return?

Quite often people assume that, because they make no money, or because they don't make enough to pay tax, they don't need to make a Self Assessment tax return. Unfortunately that is not the case and failing to do a tax return when you have to exposes you to serious penalties. While for most employees, there is no need to file a tax return since tax is taken at source through the PAYE system, they are many instances where you will have to do a tax return, even if failing to do so does not impact the HMRC coffers.

Obviously, one can understand that if you have additional income that generates additional tax, you will in most instances be required to file a tax return. There are instances however where, even if there is no additional tax due, you will have to file a tax return anyhow. Here are a few examples:

1. You are a director of a Limited Company. Even if the company has not distributed any dividends, you are required to file a tax return every year. 

The tax implications of using Airbnb in the UK

Airbnb is gaining in popularity every day. Just in London there are more 20,000 properties available on the Airbnb web site. With occupancy rates as high as 80% you might be tempted to convert your regular Buy to Let investment (BTL) into an short term let. While you will most probably increase your yields (yields are typically as much as twice what you can get on a regular BTL), doing so is fraught with risks that you need to be aware of.

The first question is to answer is if your property business qualifies as a Furnished Holiday Let (FHL). HMRC spells out the rules very clearly. In a given tax year, an accommodation qualifies for FHL if:

1. The property is located in the UK or the EEA and is let commercially (i.e. with the intention to make a profit)
2. The total of all lettings that exceed 31 continuous days is less than 155 days
3. The property is available for letting for at least 210 days in the year (excluding your days of occupancy)
4. You have let the property as a furnished holiday accommodation for at least 105 days in the year (excluding periods let at reduced rate to friends or let for more than 31 days).

Please note that if you business is considered a FHL, the tax treatment will be different. And you cannot just opt for regular BTL tax treatment instead. Also, all your FHLs in the UK are taxed as a single UK FHL business and all FHLs in other EEA states are taxed as a single EEA FHL business (losses cannot be transferred from one business to the other or to any other business -- no more sideways relief).

So here are the important points to consider:

Non-Residents to be subject to Capital Gains Tax

One of the announcements made today in the Autumn Statement is that capital gains tax will be extended to non-residents who own residential property. This extends the previous measure to bring non-resident companies within the scope of capital gains tax on 'high value' residential property, measure that was introduced alongside the infamous ATED (Annual Tax on Enveloped Dwellings). 

So now both high value and low value residential property gains will be taxed, regardless of whether the property is owned by a company or not. The change is to take effect in April 2015.

This move was expected but still, it could reduce confidence going forward. Non residents were strongly encouraged by the Government to take their properties out of companies so that a future sale of bricks and mortar (rather than shares) is subject to stamp duty. In exchange they would not be subject to the annual charge (ATED) nor to the capital gains tax. Having de-enveloped as they were asked to do, they will in fact be subject to capital gains tax after all.

Annual Tax on Enveloped Dwellings due soon

Announced in the March 2012 Budget, the Annual Tax on Enveloped Dwellings (ATED) return -- called at the time the Annual Residential Property Tax (ARPT) -- is due by October 1st 2013. The corresponding tax liability has to be paid by October 31st 2013.

If all of the following criteria are met, an ATED return is required by 1 October 2013:

• a company (other than a company acting as trustee of a settlement or as nominee), a partnership with corporate partners or a collective investment scheme which holds UK residential property, and
• at least one single-dwelling interest was worth more than £2m on 1 April 2012 or at the date of acquisition if later, and
• the single-dwelling interest was still owned on 1 April 2013

Revenue taxation from properties held jointly

When a property is held in joint names, it is important to keep in mind that the tax treatment of revenue is different for married couples (or those in a civil partnership) and for unmarried couples. For unmarried couples, revenue is taxed in the beneficial split, i.e. whatever they have agreed between themselves. Where a couple who are married or in a civil partnership however have a jointly owned property, income arising from that property is assessed on the basis of equal entitlement rather than actual ownership, ie on a 50:50 basis. It is possible, to elect to have the income assessed in the ratio of beneficial (actual) ownership instead and this election is made on Form 17. The form can be downloaded here. The form must be submitted to HMRC within 60 days of being signed and must be accompanied by proof of ownership. The election cannot be backdated and is effective from the date on which the form is signed. It remains in force until the couple cease living together as a married couple/civil partners, or until the actual ownership changes. This election must be made to the tax offices dealing with both parties.

Owning UK property in an offshore company

Until recently UK resident and non-domiciled individuals investing in UK property would have been advised to use an offshore company to hold the title. This not only allowed the owner to avoid the 40% UK inheritance Tax (IHT) but also offered the potential for future buyers to avoid stamp duty (SDLT) by acquiring the company shares rather than property title to the UK property. Perhaps not surprisingly the UK government decided to legislate in this year's Budget to prevent this loss of revenue from residential properties (commercial properties are unaffected).

The draft legislation published on 11th December 2012 outlines the new taxes and charges which will have to be paid by Non Natural Persons (NNP) owning property in the UK. There is already a new punitive rate of Stamp Duty (SDLT) where a NNP acquires a UK residential property for more than f2m (15% instead of 7%). And from April 2013, NNPs owning properties valued in excess of £2m will also be subject to an annual charge (called the Annual Residential Property Tax or ARPT). The charge will be £15,000 for properties valued between £2m and £5m, £35,000 for properties valued between £5m and £20m and £140,000 thereafter.

More bad news for non-doms

Non-domiciled individuals have been watching this Budget particularly carefully as it had already been announced prior to its delivery on 21 March 2012 that the Chancellor would be taking action in relation to individuals who acquire UK property through offshore companies. In order to tackle what the Government calls the 'enveloping' of high value properties into companies to 'avoid paying a fair share of tax', three measures are to be introduced:

• a new 15% rate of stamp duty land tax (SDLT) to purchases of UK residential properties worth over £2 million by 'non-natural persons'
• an annual charge on UK residential properties valued at over £2million owned by such persons
• an extension of the capital gains tax (CGT) regime to gains on the disposal of UK residential property and shares or interests in such property by non-natural persons who are non-resident

Furnished Holiday Let Changes

Furnished holiday lets (FHL) have a special tax treatment in the UK. The rules have changed in recent years and will continue to change going forward. It was thought at some point that the scheme would disappear altogether following the extension to EEA properties in 2009 but it now seems that it's not going to be the case.

The benefit of the scheme is that it allows the business to be considered as a trade (with some restrictions) and in particular benefit from capital allowances on fittings, furnishings and also tools (such as vans) but also have access to capital gain reliefs such as rollover relief and business taper relief. While in the past it was also possible to offset losses against total income (not just rental income), this is not possible anymore since April 2011 and losses can only be offset against the same FHL business (UK and EEA FHLs are considered separate businesses).

Owning property via a limited company

When you purchase properties in the UK, you might be tempted to setup a company to do the purchasing. As with any business incorporating has a great number of benefits, like reduced taxation and increased flexibility. Property investing however has some specificities that need to be kept in mind before you decide to make the jump. Here are some of the benefits and drawbacks of incorporating when doing property investments:

Benefits of owning property via a company

1. Flexibility regarding share transfers
2. Reduced stamp duty (0.5% vs. up to 5%)
3. Lower tax rates on net rents
4. Indexation allowance on capital gains
5. Profits can be reinvested
6. Income may be extracted by dividends
7. A company has limited liability