Property sellers risk tax penalty amid housing ‘mini-boom’

Buy-to-let landlords and others who sold properties to take advantage of the recent stamp duty holiday risk large penalties due to a little-known rule change, tax experts have warned.

Since April, UK residents who sell or gift UK residential property and make a taxable gain are required to report and pay any capital gains tax (CGT) owed within 30 days of completing the transaction. Before this they had up to 22 months to do so.

However, tax professionals said there was a lack of awareness of the rules among conveyancers, estate agents and property sellers.

Helen Thornley, technical officer at the Association of Taxation Technicians, said: “We know from experience that when similar rules were introduced for non-residents selling property in the UK in April 2015 many of them did not find out that they should have made a report to HM Revenue & Customs at the time of their property sale until they came to complete their self-assessment tax returns — with the result that many incurred penalties in excess of £1,000.

“While some penalties were later overturned on appeal, we cannot expect the same leniency this time around for taxpayers who are resident in the UK, as they might be considered to have less excuse for being unaware of the rules.”

Late filing attracts an initial £100 penalty. After three months, there are additional daily penalties of £10, up to a maximum £900. After six months, there is a further penalty of 5 per cent of the tax due or £300, whichever is greater. After 12 months, another 5 per cent or £300 charge applies, whichever is greater.

Meanwhile, for late payment individuals receive a fine of 5 per cent of the tax unpaid at 30 days, six months and 12 months.

Elaine Shiels, partner at RSM, an advisory firm, said that although the tax authority had deferred some taxes because of the pandemic, the 30-day CGT reporting deadline was “being enforced rigorously”. She called on HMRC to do more to publicise the changes.

Advisers said the rule could catch out many people at a time when the property market is booming, as buyers rush to take advantage of a stamp duty holiday in England and Northern Ireland.

Chris Norris, policy director for the National Residential Landlords Association, urged the tax authority to show leniency.

“Although landlords should always seek to ensure deadlines such as [the CGT deadline] are met, we hope that, given the extraordinary circumstances presented by the pandemic, HMRC will adopt a commonsense approach,” he said, adding that this should include reminding sellers of their responsibilities and offering leeway on penalties.

HMRC said detailed information about the rule changes was published on the website in July 2018 and HMRC had run training sessions and sent information packs to estate agents and conveyancing solicitors.

“We want to help all customers get their tax right and encourage anyone who is unsure of the rules to talk to us,” HMRC said.

Only property owners who have sold a residence that attracts taxable gains, such as buy-to-let landlords and those selling second homes, will be affected. Those who own one property that they have lived in as their main residence throughout the ownership will not fall under the rule as they do not have to pay CGT — a benefit known as private residence relief.

However, Zena Hanks, a partner at accountancy firm Saffery Champness, said people might struggle to work out if they were exposed to CGT. Accidental landlords who had lived in a property before renting it out might assume incorrectly that their sale was wholly covered by private residence relief.

She suggested property sellers ensure that their ownership records are up to date before selling and keep a paper record of costs incurred during ownership to help calculate their liability. Money spent by landlords or second homeowners improving (not repairing) a property can be used to offset CGT.


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