Disposing of investment or business property can be a significant financial event, often accompanied by the need to manage capital gains tax (CGT). For those in construction, engineering or tech-focused businesses, understanding the CGT 60-day return requirement is crucial. At PBA Accountants, we aim to make this process as straightforward as possible. Here’s our comprehensive guide to navigating CGT 60-day returns when disposing of property.
Understanding CGT
CGT is a tax on the profit when you sell or dispose of an asset that has increased in value. The tax is on the gain you make, not the amount of money you receive. For investment and business properties, this can mean significant sums.
Many business owners are unaware of the 60-day rule for reporting CGT, leading to penalties and unnecessary stress. Let’s explore how to comply with this requirement efficiently.
What is the 60-day CGT reporting requirement?
Since 27 October 2021, UK residents who sell or dispose of UK residential property that results in a CGT liability must report and pay the tax within 60 days of the completion date. Previously, this period was 30 days, so the extension provides a bit more time for compliance.
Why the 60-day rule matters
Failing to report and pay CGT within the 60-day window can result in penalties and interest charges. Ensuring timely compliance not only avoids these penalties but also helps maintain financial clarity and peace of mind.
The process may seem daunting, especially if you’re managing a construction project or running a tech business. But don’t worry – we’re here to simplify it for you.
Steps to comply with the 60-day CGT return
Determine the gain: To determine the gain, start by calculating your capital gain. This involves taking the sale price of the property and subtracting the purchase price, plus any associated purchase costs. Purchase costs can include legal fees, stamp duty and significant improvements made to the property, but routine maintenance costs are not deductible. For instance, if you bought a property for £300,000, spent £20,000 on improvements and sold it for £500,000, your capital gain would be £500,000 minus £300,000 minus £20,000, which equals £180,000.
Identify any reliefs: Next, identify any reliefs. Private residence relief can significantly reduce your taxable gain if the property was your main home for part of the ownership period. Business asset disposal relief, formerly known as entrepreneurs’ relief, may reduce the CGT rate to 10% on qualifying business disposals. Review the criteria on the HMRC website or consult us at PBA Accountants for personalised advice.
Report the gain: You must report the gain to HMRC using the “Report and pay your capital gains tax” service. If you don’t have one, you will need to create a Government Gateway account. You will need details of the property disposal, the dates of acquisition and disposal, and the calculation of the gain.
Pay the tax: Once reported, you must pay the CGT within 60 days. This can be done online via the HMRC payment portal, by bank transfer or by cheque.
Practical tips for a smooth CGT reporting process
Keep detailed records: Maintain comprehensive records of property purchases, sales and any expenses that could be claimed as deductions. This makes calculating your gain easier and ensures you can provide evidence if HMRC queries your return.
Seek professional advice: Given the complexities of CGT, seeking advice from a professional accountant can be invaluable. We can help you ensure your calculations are accurate and that you’re claiming all available reliefs.
Use digital tools: Leveraging accounting software can simplify record-keeping and ensure you have all necessary information readily available.
Example scenario
Let’s consider an example. You sell an investment property for £500,000, which you bought for £300,000. You spent £20,000 on improvements and £5,000 on legal fees and stamp duty.
- Sale price: £500,000
- Purchase price: £300,000
- Improvement costs: £20,000
- Legal fees and stamp duty: £5,000
- Taxable gain: £500,000 – £300,000 – £20,000 – £5,000 = £175,000
Assuming no reliefs apply, you would need to report this gain and pay the CGT within 60 days of the sale completion.
Summing up
Managing CGT for property disposals doesn’t have to be overwhelming. By understanding the 60-day reporting requirement and following our structured approach, you can ensure compliance and avoid unnecessary penalties. At PBA Accountants, we are here to support you through every step of the process.
Remember, staying on top of your tax obligations is crucial for the financial health of your business. If you need assistance with your CGT returns or any other accounting needs, get in touch with us today.