Reporting property capital gains

The online system for reporting capital gains on residential property is creating difficulties for taxpayers. The latest problem may lead to some investors paying too much tax.


UK residents who make a profit on selling UK residential property that is not their main home may have to pay capital gains tax (CGT). Affected properties include buy-to-let investments and additional homes.

The rules changed after 5 April 2020. Gains must now be reported, and CGT paid, within 30 days after completion using HMRC’s online CGT on UK property reporting service. The obligation applies to individuals, trusts and personal representatives of estates. Non-residents have to report using the same service, but a wider range of properties is included.

Sticking points

Property gains reported online must also be included on the annual self-assessment tax return. In several circumstances the CGT calculated and paid will not be the final amount due, which is where problems can arise. For example:

  • The rate of CGT – 18% or 28% – depends on the amount of income the taxpayer has during the year, which might not be known when the 30-day report is made.
  • The taxpayer might make a loss later in the year that can be set off against the property gain.
  • A figure in the calculation of the gain might have been estimated on the 30-day report but is known by the time the self-assessment is made.
  • A tax relief might become available.

When the final CGT figure is higher than on the property report, the balance is payable on 31 January after the end of the tax year, together with any other tax due. However if the final figure is lower, it does not generate a refund, nor is it set-off against income tax. Instead, HMRC’s calculation shows the full amount of income tax payable and a nil amount of CGT.

Example

Maria sold a buy-to-let property in June 2020 with completion on 15 July 2020, and on 14 August 2020 reported a gain on which she calculated her CGT at £18,000. She submits her 2020/21 self assessment on 1 July 2021, showing:

Income tax

£10,000

CGT

£15,000

Total tax due

£25,000

An earlier problem with the CGT property reporting service affected taxpayers who made property reports in both the 2020/21 and 2021/22 tax years. They found the later report often generated an incorrect tax calculation, but this has now been resolved.

Meanwhile the Office of Tax Simplification (OTS) has called for a lengthening of the 30-day deadline for reporting property gains. In a report on simplifying CGT practical, technical and administrative issues, presented to Parliament in May 2021, the OTS said 30 days was a challenging target, and recommended an extension to 60 days.

The operation of private residence relief and CGT on assets transferred on divorce and separation are also addressed in the report.

Please let us know if you have any queries about CGT liabilities.