Capital gains tax on disposal of UK property

Taxpayers who have sold a property in the UK which was not their main residence have 60 days from completion to file a capital gains tax (CGT) report and pay any CGT due. UK residents can access, online using the Government Gateway, the CGT on UK Property Account to report and pay any CGT liability to HMRC.  Alternatively reporting can be made using a paper form – Report Capital Gains Tax on UK property – which can be downloaded from HMRC’s website.   After submitting the paper form HMRC will provide a 14-digit reference number which must be used to pay any tax that is owed within the 60-day deadline.     

Those who are not resident in the UK must also report all disposals of UK property to HMRC, even in cases where there is no tax to pay or where they have made a loss. This includes any disposal of residential or non-residential UK land and indirect disposals of UK property.

Using the annual CGT exemption

The annual exemption should be deducted in the most tax effective way. This means that it is beneficial to deduct the exemption from gains which are subject to tax at the highest rate(s) in priority to those taxed at the lower rate(s).

Reporting and paying any tax due

The date of disposal for CGT is the date an individual enters into an unconditional contract. What this usually means in the case of property is that the disposal date for CGT purposes is the date contracts are exchanged rather than the date of completion. However, the 60-day deadline for reporting and paying CGT is based on the period from the date of completion - not the exchange date.

Example:

Lucy exchanged contracts for the purchase of her flat on 7 May 2023. The completion date was 20 May 2023. This would mean that her deadline to report and pay CGT liability is 19 July 2023.

The rate of CGT payable on any gain will depend on her other income – 18% for capital gains falling in the basic rate threshold and 28% for those falling in higher rate, after deducting any available annual exemption - £6,000 for 2023/24.

A disposal where there is no CGT liability does not need to be reported although it is possible to report on a voluntary basis.

What about losses?

In cases where the individual has incurred a capital gain and a capital loss in the same tax year, the loss must initially be deducted from any capital gain before deducting the annual exemption. Any loss which is unused can then be carried forward to use against future gains. In order to use the loss, the individual must report it with HMRC. They have up to four years after the end of the tax year in which they disposed of the asset to report the loss. This can either be done via self-assessment or for those who are not registered for self-assessment, they can write to HMRC.

Any allowable capital losses can only be carried back on the taxpayer’s death.

Loss on disposal of UK property

As mentioned above, current year losses must be set against current year gains. Only current year losses that arise prior to the date of exchange for the disposal of UK land can be set against the property gain irrespective of whether the loss has been reported to HMRC.  This should be taken into account when reporting the gain to HMRC and calculating any CGT due on account. Current year losses that arise after the date of exchange for the disposal of UK land cannot be taken into account in the real time CGT service.

Example:

Following on from the example of Lucy – she exchanged contracts for the purchase of her flat on 7 May 2023.

Let’s say she sells some shares on 29 June 2023 and incurs a capital loss. As the loss was incurred after exchange of contracts, she cannot deduct the loss from her gain on the property disposal when completing her CGT on UK Property Account.

This means that Lucy will have paid too much CGT on account, due to the allowable current year loss having been realised later in the tax year. She will have to file a self-assessment tax return to report the loss and correct the CGT position.

This issue, however, only affects current year losses. Any losses which have been brought forward have been quantified already and can be set against the gain in the CGT on UK Property Account. This means that the taxpayer would be able to use those losses to reduce the CGT payable on account.

Other gains to report

Where individuals have made capital gains on disposal of other assets/investments they would either report such gains by completion of a self-assessment tax return or by using the ‘real time’ Capital Gains Tax Service. In the latter case, if they are registered for self-assessment, they will still need to include details of the sale in their self-assessment tax return.

Summary

This overview highlights that individuals may wish to consider timings disposals to maximise use of any losses and pay less CGT up-front. It is also important to remember that the date of disposal is normally the date of exchange which in turn will determine the tax year in which a capital gain or loss on a property disposal falls, rather than the date of completion - even though the individual has 60 days from completion to file a CGT report and pay any CGT due.