Capital Gains Tax on Sale of Rental Property

06/02/2021 - 6 minutes read

The new system for the reporting and payment of Capital Gains Tax on sale of rental property took effect from 06th April 2020 and you must notify HMRC within 30 days and pay any corresponding Capital Gains Tax (CGT) on sale of rental property to HMRC within that timeframe.

Capital Gains Tax on Sale of Rental Property

Capital Gains Tax on Sale of Rental Property

Types of Transactions Reportable Under the New System

If you sell a property in the UK, you may need to pay Capital Gains Tax on the profits you make. You generally won’t need to pay the tax when selling your main home.

However, you will usually face a CGT bill when selling a buy-to-let property or second home. You may also need to pay CGT if your home is partly used as business premises, or you lease out part of your property.

In details the following transactions are reportable:

  • – A property not used as the main home
  • – A holiday home
  • – A property which is let out (but-to-let property)
  • – A property that has been inherited and not used as the main home

However, the following transactions are not reportable using the new system:

  • – Sale of the main residence where the gain is wholly covered by principal private residence relief (PPR)
  • – Where a legally binding contract for the sale was made before 6 April 2020
  • – If the disposal was made to a spouse or civil partner (nil gain, nil loss treatment)
  • – When the gains (including any other chargeable residential property gains in the same tax year) are within your tax-free allowance (Annual Exempt Amount)
  • – If, after deducting all allowable costs, you made a loss on the disposal
  • – If the property is situated outside the UK
  • – Property developments where profits are charged to income tax

Implications for Non-UK Residents

If you are a non-UK resident, you must continue to report sales or disposals of interests in UK property or land, regardless of whether there is a gain or not. You must do this within 30 days.

From 6 April 2020, you can no longer defer payment via your Self Assessment return. You must also pay the CGT within 30 days.

Do You Still Need to Register for Self Assessment?

The new system means that you no longer need to register for Self Assessment solely for the purpose of reporting Capital Gains Tax on sale of rental property. If you are reporting a ‘one-off’ disposal and have no other reason to complete a tax return, you will not need to register for Self Assessment.

How to Report & Pay Capital Gains Tax on the Sale of Rental Property

If you already have a Government Gateway account, you will simply need to add the “Capital Gains Tax on UK property account” service to your Gateway. You can then submit an agent authorisation request, which will allow your accountants to file the return on your behalf. Click here to get started.

If you do not have a Government Gateway account, you will need to create one first in order to access the system. We can assist with this process for our clients. Simply get in touch with us!

Can I Use Estimates in my Calculation of Capital Gains Tax on Sale of Rental Property?

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 the 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.

Capital Gains Tax on Sale of Rental Property – Penalty Position

Due to COVID-19, HMRC did not issue late penalties for any transactions completed between 6 April and 30 June 2020, provided the gain was reported and any tax due paid by 31 July 2020.

Anyone who completes the sale of a property from 1 July 2020 onwards has 30 days to report and pay the tax due.

Transactions completed from 1 July 2020 will receive a late filing penalty if they are not reported within 30 days.

Interest will be charged if the tax remains unpaid after 30 days for all transactions from 6 April 2020.

How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 to optimise your tax position or if you need any assistance with ascertaining your Capital Gains Tax on sale of rental property and submitting the corresponding notification to HMRC.