Background
The threshold for paying stamp duty on residential property was temporarily increased last year from £125,000 to £500,000. This nil rate band reduced from 1 July 2021 to £250,000 and is due to return to the standard £125,000 on 1 October 2021. The stamp duty threshold changes apply to companies as well as individuals buying residential property.
For individuals selling a residential property there are also additional rules which came into force from 6 April 2020. However we are still finding that many individuals are unaware of these new rules or the time frame for reporting the transaction. The rules now require a UK resident individual or trustee making a taxable capital gain on the disposal of UK residential property to submit a ‘residential property return’ to HMRC, together with a payment on account of capital gains tax (CGT), within 30 days of completion.
The rules therefore significantly reduce the time between the date of sale and when the CGT must be paid.
Detail
Stamp Duty Land Tax (SDLT)
If you purchase a residential property between 1 July 2021 and 30 September 2021, you will only start to pay SDLT on the amount that you pay for the property above £250,000.
The SDLT rates for the period between 1 July 2021 and 30 September 2021 are as follows:
- Up to £250,000 – Nil
- The next £625,000 (the portion from £250,001 to £925,000) – 5%
- The next £575,000 (the portion from £925,001 to £1.5 million) – 10%
- The remaining amount (the portion above £1.5 million) – 12%.
From 1 July 2021 special rules and rates for first time buyers apply once more, including first time buyers purchasing property through a shared ownership scheme.
An additional 3% on top of the standard rates is payable when you buy a house if you already own a residential property. This means that there is no nil rate band for SDLT on additional residential property and instead SLDT would start at 3%.
Reporting requirements for residential property sales
Since 6 April 2020 all disposals of residential property resulting in a taxable gain are required to be reported to HMRC and the estimated CGT paid within 30 days of the date of completion.
Individuals are required to register with HMRC and submit the residential property return online. Where properties are held jointly or in partnership, each owner is required to submit a return and pay the tax in respect of their share of the disposal.
The tax payer is required to pay an estimate of the CGT due, calculating the CGT based on their expected income levels. This payment will be treated as a ‘payment on account’ against their total income tax and CGT liability for that tax year. The gain on the residential property will still need to be included on the self-assessment return for that tax year, and it is at this point that any refund or additional liability will be calculated. If, upon filing the self-assessment return, additional tax is due then interest will be also be payable.
For those individuals not under self-assessment then the completion of a residential property return and the payment of CGT will satisfy their reporting requirement and they will not be required to register for self-assessment unless their other circumstances dictate they should do so. Individuals should however review their position at the end of the tax year to ensure that they have paid the appropriate CGT on the residential property disposal.
There are some exceptions to the requirement to submit a return within the 30 day period. The most common examples of when a return will not be required are:
- Where the gain is covered by principal private residence relief (‘PPR’) throughout the tax payers period of ownership
- If a loss arises on the sale of the residential property
- The gain is covered by capital losses arising before the sale takes place
- The gain is fully covered by the individual’s annual exemption for the tax year.
Penalties will apply if the return is filed late, with £100 payable if the return is filed after the initial 30 day period. For returns more than 6 months late an additional penalty equal to the higher of £300 or 5% of the tax due will be payable, and for returns more than 12 months late, a further penalty of either £300 or 5% of the tax due (whichever is higher) will also be payable. HMRC could also impose a £10 daily penalty for up to 90 days (between 3 months and 6 months of the filing date).
The reduced timescale for reporting and paying CGT on residential property sales means these obligations need to be considered by the individual immediately on completion rather than being left until the end of the tax year or on preparation of the individual’s self-assessment tax return. It would, therefore, be prudent for individuals considering selling a residential property to seek advice on completing the return and estimating the likely CGT liability as soon as possible on placing the property on the market.
If you would like more information on how the rules may affect you or would like assistance in preparing for a residential property sale, please speak to your usual contact at the firm or contact our Tax Director, Jenny Marks.
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