Farmers and estate owners who sell off residential properties will have just 30 days to pay any capital gains tax (CGT) due after new rules come into force on 6 April.
Failure to meet the new deadline will result in hefty financial penalties, warned Alan Taylor, a partner with accountancy Campbell Dallas.
Mr Taylor said previous legislation allowed the seller to declare a transaction nine months from the end of the year in which a property was sold.
Any CGT due would then be payable by 31 January following the end of the year in which the disposal took place.
What property is CGT payable on?
HMRC says you may need to make a capital gains tax report plus a payment when, for example, you sell or otherwise dispose of a:
- Property that you’ve not used as your main home
- Holiday home
- Property which you let out for people to live in
- Property that you’ve inherited and have not used as your main home.
But you won’t have to make a report and a payment when:
- A legally binding contract for the sale was made before 6 April 2020
- You meet the criteria for private residence relief
- The sale was made to a spouse or civil partner
- The gains (including any other chargeable residential property gains in the same tax year) are within your tax-free allowance (called the annual exempt amount)
- You sold the property for a loss
- The property is outside the UK.
More information is available on the HMRC website.
This could be a gap of 21 months, depending on when the sale went through, allowing time to collect any information relating to taxable gains and other relevant information.
From 6 April, there will be just 30 days to calculate the amount of tax due and to file a return, Mr Taylor said.
“This leaves very little time to collect evidence of things like the purchase date, alterations, how the property has been used and any improvements.”
The vendor’s tax rate must also be calculated to assess what payment is due, and this could be complex and take time, Mr Taylor pointed out.
It means anyone planning to sell property must consider carefully what information and proof needs to be gathered before a sale goes ahead.
Failure to file the return within the 30-day period will immediately attract a late filing penalty of £100.
“Where a return is still outstanding at six and 12 months, penalties of £300 or 5% of the tax due, if greater, will also be charged,” Mr Taylor explained.
Any late payment of the CGT due will then incur interest charges.
A penalty equal to 5% of the tax outstanding will be charged if the liability is not settled within 30 days of 31 January, following the end of the tax year of disposal, Mr Taylor added.
Additional 5% penalties will arise if the tax remains outstanding after a further five and 11 months, respectively.
However, providing files and taxes are paid within the period, HMRC has pledged to allow vendors leeway to amend errors at a later stage.
Mr Taylor suggested that HMRC would adopt a pragmatic approach if the evidence and assumptions had been provided to the best of the vendor’s knowledge and ability.