CGT is the tax you pay if you sell, give away, exchange or otherwise dispose of an asset and make a profit or ‘gain’ from it. It is the gain that is taxed, not the amount you receive for the asset. To calculate the gain, you compare the sale proceeds with the original cost of the asset.
In the 2021 Autumn Budget, the government introduced new reporting rules for residential property disposals. For sales completed after 27 October 2021, taxpayers are required to report and pay their estimated CGT liability within 60 days. For self assessment taxpayers, the property disposal must be reported on their self assessment return. The revised rules do not apply to the disposal of non-residential or non-UK properties.
Assets such as a second home, antiques or shares are the items most commonly taxed but there are two different rates of CGT – one for property and one for other assets (other than gains qualifying for Entrepreneurs Relief or Investors relief, both of which are taxed at 10%, which are outside of the scope of this article). The amount of CGT you pay depends on your tax bracket:
Tax bracket | CGT rate on other assets | CGT rate on residential property |
Basic rate | 10% | 18% |
Higher/Additional rate | 20% | 28% |
For tax years 2021/22 and 2022/23, the CGT allowance is set at £12,300, which effectively doubles to £24,600 for jointly-owned assets. If you are married or in a civil partnership, you are free to transfer assets to each other without any CGT charges.
Which properties fall within the 60 day CGT rules?
The 60 day rule applies to the direct interests in residential property, such as the sale or gifting of a house which has not always been your main residence throughout your period of ownership. Residential property is defined as a property suitable for use as a dwelling or which is being constructed or adapted for residential use – for example a property the owner has never lived in or only lived in for part of the period, a holiday home or a rental property.
How to report a property disposal
Taxpayers need to register with the HMRC digital service for a ‘Capital Gains Tax on UK Property’ account. The disposal can be reported by the taxpayer or via their tax advisor. Once submitted, a payment reference is issued by HMRC and the estimated CGT can be paid on account.
The 60 day period starts from the date of completion of the sale. Penalties and interest may be charged if the 60 day deadline isn’t met. It’s not necessary to wait until you have sold the property before registering with HMRC, it’s best to move quickly to avoid any penalties.
What records to keep?
Whether you bought the property or inherited it or were gifted it, you need to keep a record of the original cost along with the incidental costs of purchasing. If the purchase was made after 31 March 1982, proof of the original cost or a valuation of the asset on that date. If you inherited or were gifted the property, you’ll need to get the market value on the date you acquired the property.
Keep a record of other allowable costs for purchasing the asset, such as stamp duty and professional fees and also improvement costs (for example, the addition of a garage or lease extension for a leasehold property) in order to deduct these costs in the CGT calculation.
Disposal proceeds need to be recorded whether you sell or give away the property, along with any fees associated with the disposal, which can be deducted in your CGT calculation.
To make sure you calculate and pay the right amount of Capital Gains Tax, it is well worth contacting an expert for assistance. Try the friendly team at CRM for up-to-date advice and expertise on 01865 379272.