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Capital gains tax considerations for landlords

Author: ICAEW Insights

Published: 17 Mar 2023

Landlords may be selling to benefit from the CGT annual exempt amount before it falls, or market conditions may be forcing a sale, but they must be prepared to meet their CGT compliance obligations, Gillian Banks advises.

Rising interest rates combined with the finance cost restriction and falling property prices are having an impact on cash returns for landlords. While many landlords may be able to weather the storm, others may be unable to remortgage when their fixed term comes to an end due to affordability and increases in loan-to-value ratios. 

In the Autumn Statement, it was announced that the capital gains tax (CGT) annual exempt amount will be reduced from its current £12,300 level – this has increased the urgency to sell up. The annual exempt amount will reduce to £6,000 for the 2023/24 tax year and then £3,000 from April 2024. It last stood at this level in 1982.

Preparing for 60-day reporting

There is a tight timeframe for making a return following the completion of the sale of a UK residential property, if tax is payable (currently 60 days). Non-residents need to report the disposal of all UK real estate, regardless of whether tax is payable. The return is known as a CGT on property disposal (CGT PPD) return and is filed digitally using HMRC’s UK property service.

As this process falls outside the normal tax year compliance cycle, taxpayers should be regularly reminded to get in touch with their agent, should they be considering selling property, to ensure they assemble the information they need to prepare the return and tax calculations. 

Typical data required for the return and tax calculations will include:

  • Address of property, including the postcode;
  • Purchase date (generally exchange);
  • Purchase price including stamp duty, legal and any other deductible acquisition costs;
  • Cost of improvements reflected in the state or nature of the property at the time of sale;
  • If the property has ever been used as the owner’s main residence, the dates when that was the case;
  • In due course, the sale proceeds and date of sale (exchange to determine into which tax year the disposal falls and completion to determine when the CGT PPD return needs to be submitted by);
  • Costs of sale such as legal expenses and estate agent’s fees; and
  • An estimate of taxable income for the year (to determine the applicable rate of CGT).

Clients must register to use the UK property service

Agents cannot prepare CGT PPD returns through the UK property service until their clients have registered with HMRC to use the service. Taxpayers should do this as soon as they have completed the sale. 

They will need a Government Gateway user ID to set up their CGT UK property account, so that may need to be created first. Two forms of ID will be required so that HMRC can verify the individual’s identity. This was expanded in July 2022 following complaints that many people could not register, but some still cannot access Government Gateway. Non-residents may have difficulties in establishing their identities to obtain a Government Gateway ID if they don’t have a National Insurance number or unique taxpayer reference (UTR). In these circumstances, they should contact HMRC for assistance.

There then follows the ‘digital handshake’ to authorise the agent. Any existing 64-8 or other authorisation will not enable an agent to submit a CGT PPD return, as this is a completely separate system. Taxpayers genuinely unable to complete the process electronically, even with help from HMRC, may request a paper return by calling HMRC, or download a copy of the return

Once the authorisation is in place, agents can manage the client’s UK property account and complete the CGT PPD return. The return itself is relatively straightforward provided all the required information has been collected. After obtaining the client’s approval, the return can be e-filed.

Payment must go into the taxpayer’s UK property account (not their self assessment account), using the payment reference that has been provided in relation to the property account or the CGT PPD return that has been submitted. 

Where a paper return has been submitted, taxpayers must wait until a payment reference is issued to them by HMRC. They should not attempt to make payment using their UTR as a reference. Payment is due by the later of 30 days from the issue of the charge notice, or 60 days from completion. Unsurprisingly, it is understood that there is a backlog in processing paper returns.

A few really organised individuals may be able to avoid completing a CGT PPD return

Gillian Banks is a member of the Tax Faculty’s Private Client sub-committee and is a volunteer for charities TaxAid and Tax Help for Older People.

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