Is the CGT calculation changing?
The basis for calculating gains on residential property is largely unchanged, with the starting point being sale proceeds less original purchase costs, and other capital expenses deductible as well. If a loss is created at this point, there is no need to complete a residential property return.
Is a return required if I sell my main home?
If ‘Private Residence Relief’ (PRR) covers the whole period of ownership and reduces the gain to nil, then no CGT is chargeable and a residential property return is not required.
Any periods when the property qualifies as your main home are exempt from CGT, which can then also lead to an additional exempt period of deemed occupation for the last 18 months of ownership, certain other exempt periods if specific conditions are met, and letting relief of up to £40,000 per person. H M Revenue and Customs (HMRC) are also legislating to change PRR from next April, including reducing the deemed occupation period to 9 months and only allowing letting relief to those who share occupation of their house with a tenant.
When else is a return not required?
A return will only be required if the disposal gives rise to a chargeable gain. As a result, any disposal which gives rise to a loss, or a gain which falls within the annual allowance (currently £12,000) will not require the return to be completed. Similarly, a return is not required if the transfer is deemed to take place on a no gain/no loss basis (i.e. when there is a transfer between spouses).
If two or more properties are sold on the same day, only one return will need to be completed.
Can I use estimates in my calculation?
As the time limit for completing a residential property return is relatively short, HMRC appreciates that a level of estimation and assumption will be required in reaching the figures quoted. No penalties will be applied so long as evidence is retained, proving that the estimates/assumptions are reasonable given the information available at the time.
What happens with capital losses?
If you have created any capital losses before the date of disposal, these may be offset against the gain to reduce the level of CGT payable. If these reduce the gain to nil, no residential property return will be required. Any capital losses incurred after the date of disposal of the property (even if incurred before the filing of the residential property return) may not be taken into account when completing the residential property return.
How does this interact with my self-assessment tax return?
If you are within self-assessment you must report any residential property gain in your self-assessment return as well as in a residential property return.
The inclusion of additional income and/or capital gains in the self-assessment return may result in an additional amount of CGT becoming due on the disposal. In this event, a balancing payment is due by 31 January following the end of the tax year along with the filing of the tax return. No interest will be applied to this balancing payment, providing reasonable estimates were used in completing the residential property return.
Similarly, if the amount of tax declared with the filing of the residential property return is later reduced by reason of subsequent capital losses, a repayment will become due with the filing of the Self-Assessment tax return.
What happens if the sale straddles a tax year?
If you exchange contracts pre 5 April 2020, but completion happens a few weeks later after 5 April, then you will fall within both the old rules and new rules. Your 2019/20 self-assessment tax return will include the disposal as the date of exchange determines the reporting year. The CGT would normally be payable by 31 January 2021, but you will need to make the payment within 30 days of the sale completion date, if this is sooner. This earlier date is always likely to be the case.