Whilst some changes to property tax – like the extension to the Stamp Duty holiday – make headlines, others escape attention. Here’s a summary of changes to the rules on property disposals you might not have heard about.
This new regime now applies to any disposals of UK residential property since 6 April 2020, where Capital Gains Tax is payable. In such cases, tax must be calculated, reported and paid within 30 days of completion. Previously, it would be paid within the Self Assessment tax return cycle. Any relevant disposals in the tax year ending 5 April 2021 should therefore already have been reported.
Disposals should be reported through HMRC’s UK Property Reporting Service. As your tax agents, we can report disposals on your behalf. Unfortunately, the system is not entirely hands-free and you will need to set up a UK Property Account on gov.uk in order for us to report for you. It should be noted that your UK Property Account is a completely different entity from your Personal Tax Account.
30-day reporting is only relevant in cases where you have to pay CGT. The disposal of a main residence will, for most people, be covered by the CGT relief known as Private Residence Relief (PRR). This relief applies if the property has been occupied as your main home throughout the entire period of ownership.
A CGT liability and the requirement for a 30-day return could arise, for example, following the disposal of:
- A buy-to-let property
- A holiday home
- A property you have inherited
- A property you have never lived in
- A property you have lived in for just some of the time you’ve owned it.
Restrictions to Private Residence Relief
Other recent changes have restricted the availability of PRR and will potentially bring more property transactions within the scope of 30-day reporting.
Letting relief: This used to give relief up to £40,000 (£80,000 for property in joint names) on the sale of property that had been used as the main residence at some point but had also been rented out as residential accommodation. Letting relief has been considerably restricted on disposals from 6 April 2020 and is now only available if you live in the property at the same time that you let it out.
Property transfer between spouses: The spouse receiving the property will now also receive the period of ownership and history of their property use. This can have knock-on consequences for PRR.
There is also a change to the rules giving automatic relief for the final months of ownership.