George Osborne loved residential property when he was Chancellor. More specifically, he loved making taxes more complicated and expensive for residential property owners, mainly landlords or people with more than one property.
When he was still in office, he brought in the SDLT additional property surcharge and this still delights property tax practitioners today. It's a complex area that you really need specialist advice on.
We are on our second Chancellor since George departed office and yet he is still having an impact on taxes for residential property owners.
From 6 April 2020
Sales of residential property by UK residents will need to be reported to HMRC within 30 days of completion. The new rules apply to individuals, personal representatives and trustees.
The tax arising on the sale will also need to be paid within the same timescale. The tax will need to be estimated to the best of the taxpayers knowledge. This was originally announced in 2015 with the intention of taking effect from April 2019 but, in 2017, this was delayed until April 2020.
Currently sales are reported on a taxpayer's self-assessment tax return by 31 January following the tax year end or via the "real time" service. If filing a return, this could be up to 22 months after the sale so the change can accelerate the tax payment substantially.
There is some good news though – just a bit mind. The rules will only apply if tax is actually due on the sale so no gain/no loss disposals or those with no tax actually due won't need to be reported. This means that sales of your main residence, that are fully exempted by private residence relief, won't need reporting.
You may think that once the gain is reported that is it, but you'd be wrong. If you normally file a self-assessment return, you will still need to report the gain on the return. If you don't need to file a return for any other reason, no further reporting is required. There will be penalties for failure to submit the return and pay the tax within the 30 days and there is little doubt that many people will get caught out by them, much like when the same regime for reporting came in for non-residents disposing of UK property.
In addition to the reporting changes we will also have to contend with changes to lettings relief and private residence relief exemptions. Overall, the changes will be challenging for many taxpayers as the responsibility is regarded as theirs and HMRC don't accept ignorance as a defence for breaking the rules.
If you would like to discuss the changes further or need help in reporting disposals to HMRC (particularly if you're reading this after 5 April 2020) please contact our friendly Private Client department on 01245 228146 or at firstname.lastname@example.org.