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

I set out the process for 60-day reporting of gains on UK residential property (which also applies to non-UK residents disposing of UK property, whether at a gain or a loss) in a previous article. In broad terms, the person 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. I would recommend that clients are reminded annually to let you know immediately if they are considering the disposal of any property to which this could apply. 

It has been possible to print a paper return from HMRC’s website since April 2023, but this can only be used by the digitally excluded, and certain other persons who will be unable to submit returns online. The unintuitive list in HMRC’s capital gains manual includes a ‘capacitor’ (eg, someone holding a power of attorney for the taxpayer) who wants an agent to file the return, and a corporate trustee. It’s not straightforward to be accepted by HMRC as digitally excluded, and again additional time will need to be factored in. Further, there are often delays in processing paper forms and it is not possible to make a payment before the payment reference is issued.

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.

Clients within self assessment will report the disposals on their self assessment return – in addition to the 60-day return – after the end of the tax year. It is possible that this will show that there has been an overpayment of CGT (eg, if they have crystallised capital losses later in the tax year). Overpayments should (now) automatically be set against other tax liabilities for the year (eg, income tax), but if there is an excess, HMRC will have to be contacted directly to arrange a repayment.

For clients not in self assessment, an overpayment due to an amendment of the original 60-day return, or the filing of a 60-day return for another disposal producing a loss (not compulsory for UK residents), can be reclaimed via the online service. But if there is a different loss (eg, on the sale of shares) then the client will need to be put into self assessment in order to claim a refund. It may be possible to be in self assessment for one year only.

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. HMRC can also charge a £10 daily penalty if the return is more than three months late, up to a maximum of £900. However, it is not currently HMRC’s practice to do this. 

As HMRC’s use of AI and the data available to it is improving, it is hoped that in due course it will feel able to dispense with this unwieldy system.

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 has published a TAXguide that provides a detailed consideration of PPR. I last updated the TAXguide 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?

The Court of Appeal judgement in Higgins v R&C Commrs [2019] EWCA Civ 1860 was included in the TAXguide. Since then, 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. While the facts in Higgins were unusual, it is very common for exchange (contract) and completion dates to be separated by several weeks. Using the contract dates would mean that a gain would not be fully covered by PPR even where the property was occupied as the individual’s only residence between the two completion dates, which presumably was never the intention of Parliament.

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?

There have been a number of PPR cases heard before the First-tier Tribunal (FTT) in the past few years. 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 FTT), will expect to see documentary evidence to support the assertion that a property was occupied as a residence by the claimant. 

The type of evidence required, and indeed the type of counter-evidence that HMRC can put forward, is nicely outlined in Adams v HMRC [2020] UKFTT 56 (TC). As well as more traditional evidence such as council tax records, voting registration, etc, other more modern sources are used to build up a picture of how the property was used. The property had been advertised on Zoopla and the tribunal judges commented:

“We are familiar with photographs of properties for sale on property websites and in estate agents’ brochures. We consider that there is a real and obvious difference between photographs of properties that are lived in but have been tidied for sale and those properties which have not been lived in.”

They also looked at emails, including those with the taxpayer’s bank and the former tenant of the property, and noted that there was no evidence that the taxpayer’s dogs had been there.

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? 

In the case Mark Campbell v HMRC [2023] UKUT 265, Mr Campbell had bought, renovated and sold four properties within a five-year period, on one of which he claimed PPR. The FTT decided that this did not amount to a trade, and so CGT would apply (the PPR claim was refused). The Upper Tribunal dismissed HMRC’s appeal against the trading decision, but has remitted the case to be heard by a different FTT to reconsider inter alia the PPR claim, which depended in part on another property he did not own being job-related accommodation. 

However, it’s important to note that the disposals in Campbell preceded the introduction from 5 July 2016 of the transactions in UK land legislation (part 9A, Income Tax Act 2007). HMRC will no longer have to demonstrate that there is a trade to charge income tax, merely that the property was bought or developed wholly or partly for the purpose of realising a gain. Cases that have come before the FTT previously have usually involved situations where individuals have owned more than one property at the same time (such as in Adams, above). 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