Capital gains tax on residential property: Where are we now?

It’s been over four years since the real time reporting regime for capital gains tax (CGT) on residential property came into force. Since then, we’ve seen numerous changes to deadlines, allowances and tax rates.

This blog will help you understand these changes and the rules currently in place to avoid unwanted costs or penalties.

The shrinking annual exempt amount

One of the most significant changes in the current tax year is the reduction of the capital gains tax annual exempt amount to just £3,000. This follows previous reductions from £12,300 in 2022/23 to £6,000 in 2023/24. The lowering of the threshold means that many more people will find themselves liable for CGT on gains from residential property sales.

When this series of reductions were first announced 2022, it was estimated that an additional 260,000 individuals and trusts would be subject to CGT on any disposals. With the sale of property realising greater proceeds than ever, this change emphasises the need for careful tax planning, especially for those who may not have previously been affected by CGT.

Sixty-day reporting: A tight deadline

When the real time reporting requirement was first introduced, the deadline for reporting and paying CGT was just 30 days from completion. From October 2020, this deadline was lengthened to 60 days, where it sits currently.

The penalties for failing to meet the 60-day reporting deadline are severe. If you miss the deadline, an initial £100 penalty applies. If the delay extends beyond six months, an additional penalty of £300 or 5% of the tax due (whichever is greater) is imposed. This penalty is repeated if the delay continues beyond 12 months. Furthermore, the interest rate for late payments currently stands at 7.50% per annum (from 20 August 2024), making it even more critical to avoid delays.

The reporting process involves a separate return from your regular self-assessment tax return and a gov.uk UK property account. This separation means careful attention is needed to make sure you have the appropriate accounts and references in order to report and pay on time.

Principal Private Residence (PPR) Relief: Nuanced and complex

Principal Private Residence (PPR) Relief can exempt your main home from CGT, but the rules are intricate and not always straightforward.

If you’re selling a property which is not your only property, nor have you always lived in it throughout ownership, it’s strongly recommended that you seek professional tax advice to make sure that you’re maximising available tax relief.

The tax rate reduction

From 6 April 2024, the tax rate on residential property gains has been reduced to 24% for higher rate taxpayers, while it remains at 18% for gains within the basic rate. This reduction might seem like good news, but it comes alongside the significantly lower annual exempt amount, which means that more of your gain is likely to be taxed.

Preparing for the future

Given these changes, here are some steps you should consider:

• Early preparation: With the tight reporting window, start preparing your documentation as soon as you begin the process of selling a property. If you’re interested in our help with the process, we can give you a helpful fact finder, listing the documentation required.
• Accurate record-keeping: Make sure that all relevant information and documentation regarding the sale, including the period of ownership and residency evidence, are readily available.
• Consultation with professionals: Given the complexity of private residence relief and the penalties for mistakes, it’s advisable to consult a tax professional.

More changes afoot

The recent changes to CGT on residential properties represent a significant tightening of the rules. Understanding the reduced annual exempt amount, the stringent 60-day reporting requirement, and complexities of tax relief can help you avoid penalties and optimise your tax situation.

With the first Labour Budget confirmed for 30 October 2024, further changes to this regime are likely. Please look out for further blogs or get in touch with a member of our team to discuss your situation. Call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Jordan Smith