Capital Gains Tax

Firstly, what is Capital Gains Tax?

Capital Gains Tax (CGT) is payable when you sell (or dispose of):

• Most personal possessions worth £6,000 or more (excluding cars)
• Property that is not your main home
• Your main home if you have let it out, used it for business or it is very large
• Shares that are not in an ISA or PEP
• Business assets

When Capital Gains Tax is due on disposals of assets, such as a property, tax is payable on any ‘gain’ made i.e. sales price minus purchase price.

As we are specifically considering residential property in this instance the rates of CGT that will be applicable are 18% for basic rate tax payers and 24% for higher rate taxpayers – these are chargeable on any gain made (remember the gain could push you into higher rate tax bracket). Prior to 2020 CGT was reported on your self-assessment tax return which is due by 31 January after the end of relevant tax year.  However since 6 April 2020 new requirements have been introduced in relation to disposal of residential properties which mean you need to report any tax due via using HMRC’s online ‘real time’ Capital Gains Tax service (note there is an option for paper version of the form but HMRC prefers/defaults to the online version).

Are there any Capital Gains Tax exemptions?

There are several reliefs that are available with regards CGT which are complex so for this situation let’s briefly mention a few of them:

• Principal private residence: As mentioned above, when people sell their own home it is covered by ‘principal private residence (PPR)’ relief so no Capital Gains Tax is payable and no disclosure to HMRC is required
• Tax-free allowance: Every individual has a Capital Gain tax-free allowance (Annual Exempt Amount) each year which is currently £3,000 (this has been drastically reduced by HMRC and is less than a quarter of level it was at during 2022/23).  If gains are within this allowance each tax year no CGT is payable, but you might need to declare the disposal on a personal tax return.
• Spouse exemption: It is also always worth remembering that transfers between married couples/civil partners are exempt from CGT. This can be useful as each individual is entitled to a tax-free allowance. For example, if a husband and wife jointly own a property, they each get the £3,000 allowance towards their 50% share of any gain on sale of the property.

What were the changes that came into effect on 6 April 2020?

1. 60-day reporting & payment window: This reporting procedure means that within 60 days of disposing of a property a ‘payment on account return’ will need to be submitted to HMRC along with payment of Capital Gains Tax due.
2. Abolition of letting relief: There was almost complete removal of letting relief for individuals. Letting relief had previously been available on a property that at one time during ownership was a person’s own home i.e. their principal private residence.  Please note there is still some letting relief available post April 2020, but you must live in the property as your main residence at the same time as your tenants to be eligible for the relief.
3. Reduction in deemed own home relief: The final period of deemed own home relief has reduced to 9 months. This is available, again, if at some stage an individual lived in a property as their principal private residence.

These changes mean that owners of residential property have to think carefully about the timing of any sale or gift of their property. The 60-day reporting and payment window is already in place for non-resident landlords who must report any sale to HMRC even if no gain was made (note for clarification if you are a UK resident and don’t have any CGT payable on the disposal you don’t need to submit the CGT real time return within 60 days but if you do a self-assessment tax return that tax year you should include the full details in that self-assessment tax return).

These requirements will affect those disposing of rental properties or second homes i.e. you will need to submit a ‘CGT real time return’ to HMRC within 60 days of completion of the sale and make payment within the same 60-day time limit. This requirement does not apply to disposals covered wholly by private residence relief (PPR) but will apply to the non-exempt element of the gain where only partial PPR is available.

As the reporting time-frame is only 60 days you must estimate what tax rate is applicable to them i.e. basic or higher rate even though the current tax year hasn’t yet ended, which could mean you pay too much CGT and must wait until after the end of the tax year to complete a self-assessment tax return to recover any overpaid tax.

How do I navigate the CGT requirements?

Neilsons Solicitors and Estate Agents as a firm do not hold ourselves out as taxation lawyers and therefore cannot assist you directly with the relevant paperwork therefore you have two options:-

1. You can deal with the CGT issue direct.  You have 60 days from completion of the transaction to inform and pay HMRC.  If you are proceeding direct this is the link to the appropriate section of the website for:
2. UK residents: Visit this page here. On that page there is a link to the “‘real time’ Capital Gains Tax Service” which requires submission through your online personal tax account (new users need to set up a new government gateway account).  You need to set up a UK property account when you use this for the first time which provides you with a UK property account number which begins with an “X”.
3. Non-UK residents: There is a requirement to report (even if nothing due) & pay within 60 days. Visit this page here.
4. Hollis Accounting can assist you with everything.

Hollis Accounting’s Fees (quoted inclusive of VAT) start from:

• CGT calculation for inclusion by an individual into their own personal tax account – £420 (or calculation for inclusion in a personal tax return they do themselves)
• Completion of CGT real time return & submission to HMRC on your behalf – £450. For spouses i.e. doing both returns when property owned jointly the fee would be £798 (2 returns).
• Non-resident CGT Tax return completion for individual – £570
• Non-resident CGT Tax return completion for spouses – £1,050 (for doing both returns to HMRC when property owned jointly)
• Self-assessment (personal) tax return completion for an individual – in region of £540 (depends on specific circumstances) so contact Hollis Accounting for specific quote

Contact Hollis Accounting on 0131 225 2821 or email [email protected] to discuss requirements further.

To discuss selling your property, book an appointment with Neilsons online here!

Making Tax Digital for Income Tax (MTDIT)

A final comment as we are on the topic of new tax requirements that relate to properties.  If you are a UK landlord (&/or are self-employed) and have total qualifying income of £50,000 or more per year please be aware there are new reporting requirements being introduced from 6 April 2026 which involve quarterly reporting of your rental & self-employment income to HMRC.  This MTDIT is being phased in over a number of years so there is staged introduction based on income levels with it being mandatory (note HMRC have advised there are no penalties during the first year):

• from 6/4/26 for those with qualifying income over £50k
• from 6/4/27 for those with qualifying income over £30k and
• from 6/4/28 for those with qualifying income over £20k

It is the gross income (before deduction of expenses such as letting agent fees) that is considered and if your qualifying income in total (consolidated) between property & self-employment is above the threshold then MTDIT applies.  For example if you had self-employment turnover of £40k and rental income (before expenses) of £11k your total qualifying income is £51k so MTDIT applies – HMRC have been writing out to individuals who they believe it applies to.

You can find out more on HMRC’s website here or contact Hollis Accounting as detailed above.