The capital gains tax (CGT) annual exempt amount has fallen to just £3,000 for 2024/25, from £6,000 for 2023/24 and £12,300 for 2022/23. When the policy was first announced at Autumn Statement 2022, it was estimated that an additional 260,000 individuals and trusts would be brought within the scope of CGT for 2024/25 as a result of the measure. 

Those disposing of residential property have the added complications of 60-day reporting and, depending on the circumstances, having to apply the rules for principal private residence relief. Given the hefty penalties that may apply, and that the interest rate for late payment currently stands at 7.75% pa, making a mistake could prove costly. 

Sixty-day reporting

In broad terms, a person reporting gains on UK residential property must report the gain on a special return, having previously set up a UK property account, and pay the tax due within 60 days of completion of the sale or disposal. Given the tight timescale, being prepared in advance is key. A paper return may be used by the digitally excluded, and certain other persons who will be unable to submit their returns online. A person within self assessment will report the disposal on their self assessment return – in addition to the 60-day return – after the end of the tax year.

It should also be noted that payments of any tax due under the 60-day regime are dealt with separately from any other HMRC liabilities such as under self assessment. The payment reference should be a 14-digit number starting with X – this will be found in the taxpayer’s online UK property account, or in a letter sent to them by HMRC after they’ve submitted a paper return. Problems are likely to occur if the payment is made into a taxpayer’s self assessment account using their unique tax reference (UTR), as allocations against other liabilities may not be reversible.

A penalty of £100 is charged if a return is filed after the deadline. A further penalty of either £300 or 5% of the tax due – whichever is higher – is charged if the deadline is missed by six months, and then that penalty is repeated if the failure continues after 12 months. 

Principal private residence relief

Where a person sells property they have lived in, there may be no CGT to pay due to the availability of principal private residence relief (PPR). However, the rules can be challenging to apply and, depending on the circumstances, it may be that PPR is denied or restricted. ICAEW’s TAXguide provides a detailed consideration of PPR, however, this was last updated in April 2021 and since then there have been a number of developments, including with regard to the following areas. 

What is the period of ownership?

HMRC has confirmed it accepts that, for the purpose of PPR, s28, Taxation of Chargeable Gains Act (TCGA) 1992 should generally be ignored, and completion dates used instead to determine the period of ownership of a property. HMRC’s capital gains manual (CG64923) now helpfully confirms: “Where a dwelling-house is purchased and disposed of by way of contract, the period of ownership for private residence relief purposes will generally commence on completion of the contract to acquire and cease on completion of the contract to dispose. Private residence relief should therefore be computed accordingly.”

Was the property the person’s residence?

Before a property can qualify for relief as a main residence, it has to have been a residence in the first place. It is clear that the ‘quality’ of the occupation is key to whether this test is satisfied, and the burden of proof falls on the taxpayer. The test referred to frequently in decisions is set out in Goodwin v Curtis 70 TC 478. This is that the occupation had some degree of permanence, continuity, or expectation of continuity. HMRC (and if it is not convinced, the First-tier Tribunal (FTT)) will expect to see documentary evidence to support the assertion that a property was occupied as a residence by the claimant. 

Did the person sell the property as part of a trade?

It is well known that if a property has been bought wholly or partly for the purpose of realising a gain from the disposal of it, then PPR will not be available (s224(3), TCGA 1992). But how is this interpreted? Cases that have come before the FTT have usually involved situations where individuals have owned more than one property at the same time. I have seen no evidence (yet) that HMRC is enquiring into disposals where a family home is purchased, occupied and then sold with the process beginning again with another property, even where there has been significant renovation or development.

Other developments

The tax rate on residential property gains for higher rate taxpayers reduced to 24% for disposals from 6 April 2024 (it remains 18% where gains are within the basic rate).

Gillian Banks, member, ICAEW Tax Faculty Private Client sub-committee and volunteer for the charities TaxAid and Tax Help for Older People.

Further reading 

• TAXline article: Landlords looking to sell must prepare for their tax reporting obligations
• TAXguide 10/21: A guide to principal private residence relief
• TAXguide 15/20: Capital gains tax UK property disposal reporting
• Commentary on private residences in Property Tax Planning
• Bloomsbury content available to member firms

A longer version of this article is available at TAXline, the Tax Faculty’s online content hub.