If you dispose of a property that isn’t your main home, you’re obliged to notify HMRC within 60 days of the exchange of contracts and pay any Capital Gains Tax that may be due on the sale. This has changed and its caught out several people so here’s what you need to know about the current rules.
What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value.
It’s the gain you make that’s taxed; not the amount of money you receive. For example, if you bought a property for £100,000 and sold it later for £125,000, you’ve made a gain of £25,000 (£125,000 minus £100,000).
Some assets are tax-free. You also don’t have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.
Capital Gains Tax on the sale of a rental or investment property
Submission and payment are due within 60 days of completion (this changed a couple of years ago as previously this would just go on your tax return). The solicitor should be informing the client about this, but more than often they’re not, and it’s leading to penalties and interest.
We’re coming across an increasing number of clients who are not being advised by their conveyancers that they need to do this, and as they’re not informing us until their self-assessment return is due, the filing deadline is being missed.
What type of properties are included?
Examples of the type of properties that are caught by this rule include, but are not limited to, rental properties, holiday lettings, or a second home. If you’re unsure whether this may apply to you, please make sure you check with us as the late filing penalties are listed below.
- A penalty of £100 if the return is not filed within 60 days.
- A further penalty of £300 or 5% of any tax due, whichever is greater if the deadline is missed by more than 6 months.
- A further penalty of £300 or 5% of any tax due, whichever is greater if the deadline is missed by more than 12 months.
What records do I need to keep?
You need to collect records to work out your gains and fill in your tax return. You must keep them for at least 6 years after the Self-Assessment deadline.
You’ll need to keep records for longer if you sent your tax return late or if HM Revenue and Customs (HMRC) have started a check into your return. Businesses must also keep records for 6 years after the deadline.
Records you’ll need
Keep receipts, bills and invoices that show the date and the amount:
- you paid for an asset
- of any additional costs like fees for professional advice, Stamp Duty, improvement costs, or to establish the market value
- you received for the asset – including things like payments you get later in instalments, or compensation if the asset was damaged
It’s important you also keep any contracts for buying and selling the asset (for example from solicitors or stockbrokers) and copies of any valuations.
If you do not have records
You must try to recreate your records if you cannot replace them after they’ve been lost, stolen, or destroyed.
If you fill in your tax return using recreated records, you’ll need to show where the figures are:
- estimated – that you want HMRC to accept as final
- provisional – that you’ll update later with the actual figures
If you have any questions about property disposals, or you need some guidance with your accounts, please get in touch with Trinity Accountants, and we’d be pleased to help.