CGT reporting for selling your home: resident or non-resident?
08 February 2022
Since 6 April 2020, UK tax residents have had to consider whether they need to report and pay capital gains tax (CGT) shortly after disposing of a UK residential property. One exception to this reporting is where the property qualifies in full for the private residence relief (PRR) which exempts any gain from tax.
Similar CGT reporting requirements, covering non-resident individuals and other entities selling UK residential properties, have been in place since April 2015. There are differences in the reporting requirements, the main one being that non-UK residents must submit a CGT report whether or not any CGT arises from the disposal. This means they potentially need to report a disposal within the 60-day deadline, even where it is fully exempt as the individual’s main residence. This means that whether an individual is resident or not at the relevant time is vitally important to their understanding of their reporting obligations.
In the majority of cases, whether an individual is a UK tax resident or not will be clear. However, this is not always the case, and potential issues can arise where an individual has been resident and then leaves the UK in the tax year of disposal. For example, an individual may leave the UK during the year, believing their circumstances mean they will not become a non-UK resident until the next tax year. On that basis they won't file the CGT return when they dispose of their main residence. But what if their plans change and they actually don't meet any of the tests in order to be resident for that tax year, meaning they are actually non-resident for the whole year? Potentially, they will not be aware of this until beyond the 60-day deadline for filing, and so will have missed the filing deadline and be subject to late filing penalties.
A potential issue also arises if they are leaving the UK in circumstances where a split-year treatment should apply, with the result that they are resident for the first part of the tax year and then non-resident for the remainder of the tax year. This means that an individual would not necessarily know the date on which they cease being a UK resident under split year rules until beyond the 60-day reporting deadline. For example, if they intend to take up full-time work abroad, the split year date will be the date they start that work and so they could believe themselves to be UK resident at the point they exchange contracts, and so no CGT reporting is needed. However, what if they don't take up their new employment overseas? Their split year date could then be determined by the date they left the property. If this is before the date they exchanged contacts, they should have completed the CGT report on the basis they were a non-UK resident at that point.
To make matters worse, there can be further conditions of qualifying for split year treatment which rely on an individual’s residency status for the following tax year, so again residency cannot be determined before the 60-day filing deadline.
Individuals would be well advised to consider their residency status at the time of the disposal based on the facts available to them and their intentions at that time. If it later transpires that they were non-resident at the relevant date, but have not filed as they believed they were UK resident, then they should file a CGT report as soon as possible. They will likely need to appeal against the resulting penalties.
It would be helpful to taxpayers if HMRC could provide guidance that they will consider such circumstances as a reasonable excuse to appeal against any later filing penalties. Furthermore, if they would accept that a note explaining the situation accompanying the late CGT report would be sufficient for them not to levy penalties in the first place, this would save taxpayers a lot of time, cost and worry.
Similar CGT reporting requirements, covering non-resident individuals and other entities selling UK residential properties, have been in place since April 2015. There are differences in the reporting requirements, the main one being that non-UK residents must submit a CGT report whether or not any CGT arises from the disposal. This means they potentially need to report a disposal within the 60-day deadline, even where it is fully exempt as the individual’s main residence. This means that whether an individual is resident or not at the relevant time is vitally important to their understanding of their reporting obligations.
In the majority of cases, whether an individual is a UK tax resident or not will be clear. However, this is not always the case, and potential issues can arise where an individual has been resident and then leaves the UK in the tax year of disposal. For example, an individual may leave the UK during the year, believing their circumstances mean they will not become a non-UK resident until the next tax year. On that basis they won't file the CGT return when they dispose of their main residence. But what if their plans change and they actually don't meet any of the tests in order to be resident for that tax year, meaning they are actually non-resident for the whole year? Potentially, they will not be aware of this until beyond the 60-day deadline for filing, and so will have missed the filing deadline and be subject to late filing penalties.
A potential issue also arises if they are leaving the UK in circumstances where a split-year treatment should apply, with the result that they are resident for the first part of the tax year and then non-resident for the remainder of the tax year. This means that an individual would not necessarily know the date on which they cease being a UK resident under split year rules until beyond the 60-day reporting deadline. For example, if they intend to take up full-time work abroad, the split year date will be the date they start that work and so they could believe themselves to be UK resident at the point they exchange contracts, and so no CGT reporting is needed. However, what if they don't take up their new employment overseas? Their split year date could then be determined by the date they left the property. If this is before the date they exchanged contacts, they should have completed the CGT report on the basis they were a non-UK resident at that point.
To make matters worse, there can be further conditions of qualifying for split year treatment which rely on an individual’s residency status for the following tax year, so again residency cannot be determined before the 60-day filing deadline.
Individuals would be well advised to consider their residency status at the time of the disposal based on the facts available to them and their intentions at that time. If it later transpires that they were non-resident at the relevant date, but have not filed as they believed they were UK resident, then they should file a CGT report as soon as possible. They will likely need to appeal against the resulting penalties.
It would be helpful to taxpayers if HMRC could provide guidance that they will consider such circumstances as a reasonable excuse to appeal against any later filing penalties. Furthermore, if they would accept that a note explaining the situation accompanying the late CGT report would be sufficient for them not to levy penalties in the first place, this would save taxpayers a lot of time, cost and worry.
