With property transactions, Capital Gains Tax (CGT) often emerges as a significant factor, catching many individuals off guard and resulting in unexpected financial implications.

At Whittaker and Co., we recently encountered a case that underscores the importance of understanding and complying with CGT regulations to avoid unnecessary additional payments. This revelation prompts us to shed light on the intricacies of CGT, particularly for those engaged in property flipping and transactions.

Understanding Capital Gains Tax:

Capital Gains Tax is levied when an individual sells a property that is not their primary residence, requiring them to pay tax on the profit generated from the sale. It is imperative to note that individuals have a 60-day window from the sale to report and settle their CGT obligations through the UK Property Disposal Service. Failure to adhere to this timeline may result in penalties and the accrual of interest on unpaid taxes.

Selling through the trading accounts of a business:

For properties sold through the trading accounts of a business, CGT may not be applicable. However, individuals must be prepared to pay Income Tax on their profits.

The property is the individuals’ main residence:

If the property serves as the individual’s primary residence throughout the entire ownership period, typically, no tax will be due. However, certain factors may introduce tax implications, which we have outlined below:

• If another property is the individual’s main home.
• If the garden and grounds exceed 0.5 hectares.
• If only a part of the property is the main home.
• If the property was lived in for only part of the ownership period.
• If the property was never inhabited, even if was intended to be the main home.
• If the property was purchased for a family member’s residence instead of the individual.

Deductible and Non-deductible Expenses:

When calculating the gain on property disposal, allowable deductions encompass estate agent and solicitor fees, as well as costs related to property improvements such as loft conversions. However, normal maintenance costs, mortgage interest, and capital mortgage repayments are non-deductible.

Personal time spent working on the property cannot be claimed, except for actual expenditures.

Beneficial owners:

If you are a trustee or nominee, you will not have to pay CGT, but it is essential to inform the beneficial owner as they may owe CGT.

Inherited and Gifted Properties:

Inherited properties incur Inheritance Tax on the value at the date of death, with CGT applicable only if the property is subsequently sold for a higher value. Gifted properties may trigger CGT if not transferred to a family member.

Calculating and Reporting CGT:

For properties sold below market value, individuals may be eligible for a tax refund. Professional property valuation, allowable expense deduction, and application of tax reliefs are crucial elements in calculating the CGT. Payment is only required if a gain is realised after considering deductions and reliefs.

Ensuring Compliance:

To navigate CGT successfully, individuals must:

• Report and pay any tax due on the property using the CGT on the UK Property account within 60 days of selling, effective from 27th October 2021.

The HMRC website provides comprehensive information on these aspects. Educating oneself is paramount to avoiding penalties and interest. If you require additional information or assistance, our team at Whittaker and Co. is readily available to guide you through the intricacies of Capital Gains Tax.

Capital Gains Tax: what you pay it on, rates and allowances: Overview – GOV.UK

We Are Adding Updates to This Article to Further Inform You

We’ve included additional insights to address key areas that may affect property transactions to help you better understand capital gains tax (CGT).

CGT Thresholds for Reporting and Exemptions

• For the 2023/24 tax year, individuals can benefit from an annual exempt amount of £6,000 (£3,000 for trusts).
• If your total gains for the year are below this threshold, reporting them is not required.

CGT Rules for Non-Residents

• Non-UK residents need to declare the sale of any property in the UK, even their own home.
• Non-UK residents disposing of UK property must complete the 60-day CGT report, even if no tax is due.
• These rules apply to both residential and non-residential property transactions.

Real-Time Reporting Options

• For disposals unrelated to property, HMRC offers a real-time reporting service.
• This allows you to pay CGT before the end of the tax year, potentially simplifying your tax obligations.

Exceptions to the 60-Day Reporting Rule

• In some cases, the self-assessment tax return can replace the 60-day CGT report.
• Only applicable if the self-assessment return is submitted before the 60-day deadline and includes the correct CGT liability.

Penalties for Late Filing

• Missing the 60-day CGT reporting deadline results in:
  • A £100 penalty if delayed by up to 3 months.
  • Additional daily penalties and interest for longer delays.
• Timely filing is essential to avoid unnecessary costs.

Filing Options and Common Errors to Avoid

• While HMRC encourages digital filing, paper forms are also available for those unable to access online services.
• Common errors to watch out for include:
  • Incorrect property valuations.
  • Forgetting to deduct allowable expenses such as estate agent or solicitor fees.

If you require further guidance on Capital Gains Tax or help with your property transaction, reach out to Whittaker & Co. Our team is here to make CGT compliance clear, efficient, and worry-free.