Property investors: don’t forget the 60 day reporting requirement
If you’re a landlord and are planning to sell a buy-to-let (BTL) property, don’t forget that you only have 60 days from the date of completion to declare any gain to HMRC and pay the Capital Gains Tax (CGT).
Prior to 6th April 2020 when you sold a BTL property you would simply declare this on a self-assessment tax return for the tax year the property was sold and pay any CGT by 31st January following the end of that tax year.
But since then, you must report the gain and pay the CGT to HMRC within 60 days of the completion date. Bear in mind that HMRC have access to land registry records and so they can often send prompt letters when there is a change in ownership, asking if there is any CGT to report.
While the rules changed more than five years ago, many landlords haven’t realised this – simply because they may not have sold a property during that time and, therefore, the ruling hasn’t affected them – yet.
Now you need a crystal ball – particularly if your annual income is close to that point where you go from a basic tax rate to a higher tax band. If, for instance, you’re selling a property three months into your tax year, you’ll need to forecast what the total income for, not only this three months, but the next nine months too.
You’ll need to calculate the total profit from the sale of your property, not just the original cost subtracted from the sale price, but taking into account any capital improvement ( like improving the roof, double glazing, extensions etc.) and also stamp duty and legal fees at the purchase and at the point of sale.
And, even when you’ve paid the CGT on time, you will still need to report the gain on your self-assessment tax return. This is the time when you can work with the actual figures rather than guesswork and you may find that no additional CGT payable or maybe a small balance may be either payable or refundable depending on your other income levels in the tax year.
HMRC can levy penalties of £100 for late filing even if no CGT is due. There will also be interest accrued on the CGT from the date the tax was due to be paid until actual payment is made, and there will be interest levied if your calculations were off and you have a balance to pay on your annual tax return.
Plan ahead and ensure that your CGT on BTL properties is paid within that 60 day limit, to ensure you don’t pay any more in interest and penalties than you should.
