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The Chancellor extends the 30-day reporting system for capital gains tax on residential property sales to 60 days

It has just been announced that Rishi Sunak has extended the 30-day reporting system for capital gains tax (CGT) on residential property sales to 60 days.  The extension will apply to any sale completed after the 27th of October 2021 that creates a CGT liability.

Since April 2020 any UK resident taxpayers who sells a residential property, which creates a capital gains tax (CGT) liability have needed to report and pay the CGT due to HMRC within 30 days of the completion of their sale.

Many have found this 30-day window far too tight.  A combination of complicated and occasionally changing CGT regulations and a general lack of awareness amongst property owners has meant many sellers have either failed to meet or even observe the deadline.

This means the initial response to the Chancellor’s announcement to extend the 30-day reporting system for capital gains tax on residential property to 60 days has been received positively (although any sale completed before the 27th of October will still need to meet the previous 30-day deadline).

The announcement also made us think it may be a good time to answer some of the most popular FAQs about capital gains tax.

Do I pay capital gains tax when I sell a property?

If you sell a property in the UK, you may need to pay capital gains tax (CGT) on the profits you make.

However, you will most likely not need to pay CGT if you have sold your primary residence.  CGT is usually a consideration when you are selling a buy-to-let property or a second home.

Alternatively, you may need to pay CGT if you use part of your home for business purposes or if you lease part of your property on a residential or commercial basis.

What are the capital gains tax rates on property sales in the UK?

Unfortunately, CGT on property is higher than it would be on other assets.

Basic-rate taxpayers need to pay 18% on any gains they make when selling property while higher-rate taxpayers will need to pay 28%

It’s also very important to bear in mind that if you do incur capital gains the total will be added to all your other sources of income.  This could mean that once you add your gains to your income, you may be pushed into a higher tax bracket.

You do however have an annual CGT allowance.  At time of writing the first £12,300 of any gain you make would be tax free and couples can combine their allowances to make a tax free allowance of £24,600 but this allowance can’t be carried over into the next tax year so you need to “use it or lose it”.

When is capital gains tax on property sales due?

As we’ve said, up until now any CGT would have to be paid within 30 days but, thanks to the Chancellor’s extension, the 30-day reporting system for capital gains tax on residential property has now been extended to 60 days for any UK properties sold on or after the 27th October 2021.

What can I deduct from my CGT gain to reduce my tax bill?  

Certain costs can be deducted from your CGT bill including your solicitor’s and estate agent’s fees and stamp duty.

You can’t however deduct any costs associated with the upkeep of your property or any mortgage interest you may have accrued (although both could reduce the amount of tax you need to pay on any rental income you have received).

If you have any questions regarding the sale or purchase of a home or an investment property, please email me at Jeremy.Tulloch@collinshoy.com or call me on 0208 515 6600.