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60 day CGT Return

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60 day CGT Return

Understanding the 60-Day Capital Gains Tax (CGT) Return in the UK: A Comprehensive Guide

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. In the UK, if you sell a property that isn’t your main residence, you may be liable to pay CGT on the gain you make. One of the most critical aspects of CGT compliance is the 60-Day CGT Return, which requires taxpayers to report and pay any CGT due within 60 days of completing the sale of a residential property. This blog will provide a detailed overview of the 60-Day CGT Return, including who needs to file it, how to calculate the tax, and the steps involved in the process.

Table of Contents

  1. Introduction to Capital Gains Tax (CGT)

  2. What is the 60-Day CGT Return?

  3. Who Needs to File a 60-Day CGT Return?

  4. Calculating Capital Gains Tax

    • Determining the Gain

    • Allowable Deductions

    • Annual Exempt Amount

    • Tax Rates for CGT

  5. How to File a 60-Day CGT Return

    • Registering for a Government Gateway Account

    • Gathering Necessary Information

    • Completing the Return

    • Making the Payment

  6. Penalties for Late Filing and Payment

  7. Common Mistakes to Avoid

  8. Tips for Reducing Your CGT Liability

  9. Conclusion

1. Introduction to Capital Gains Tax (CGT)

Capital Gains Tax is a tax on the profit you make when you sell or dispose of an asset that has increased in value. The tax is only charged on the gain you make, not the total amount of money you receive. In the UK, CGT applies to a wide range of assets, including:

  • Property that isn’t your main residence (e.g., buy-to-let properties, second homes)

  • Shares not held in an ISA or PEP

  • Business assets

  • Personal possessions worth £6,000 or more (excluding your car)

The rate of CGT you pay depends on your income tax band and the type of asset you’ve sold. For residential property, the rates are 18% for basic rate taxpayers and 28% for higher and additional rate taxpayers.

2. What is the 60-Day CGT Return?

The 60-Day CGT Return is a requirement introduced by HM Revenue and Customs (HMRC) in April 2020. It applies to UK residents who sell a residential property in the UK and make a gain that is subject to CGT. The rule requires taxpayers to report the gain and pay any CGT due within 60 days of completing the sale.

Before this rule was introduced, taxpayers could wait until the end of the tax year to report and pay CGT on property sales. However, the new rule aims to accelerate the payment of tax and improve compliance.

3. Who Needs to File a 60-Day CGT Return?

Not everyone who sells a property needs to file a 60-Day CGT Return. The requirement applies to:

  • UK Residents: If you’re a UK resident and you sell a residential property that isn’t your main home, you’ll need to file a 60-Day CGT Return if there’s a gain that’s subject to CGT.

  • Non-UK Residents: Non-UK residents are also required to file a 60-Day CGT Return if they sell any UK residential property, regardless of whether there’s a gain or loss.

However, there are some exceptions:

  • Main Residence Relief: If the property you’re selling is your main home and you’re eligible for Private Residence Relief (PRR), you won’t need to file a 60-Day CGT Return.

  • No Gain or Loss: If you sell the property at a loss or the gain is covered by your annual exempt amount, you don’t need to file a return.

  • Joint Ownership: If you own the property jointly with someone else, each owner is responsible for filing their own 60-Day CGT Return if they have a gain to report.

4. Calculating Capital Gains Tax

Calculating CGT can be complex, but it’s essential to get it right to avoid underpaying or overpaying your tax. Here’s a step-by-step guide to calculating your CGT liability:

a. Determining the Gain

The first step in calculating CGT is to determine the gain you’ve made on the sale of the property. This is done by subtracting the purchase price (or “base cost”) from the sale price.

Formula:

Copy
Gain = Sale Price - Purchase Price

However, the purchase price isn’t always straightforward. If you bought the property a long time ago, you may need to adjust the purchase price for inflation (up to April 1998) or use the market value at the time of acquisition if it was a gift or inheritance.

b. Allowable Deductions

You can deduct certain costs from the gain to reduce your CGT liability. These include:

  • Costs of Acquisition: This includes the purchase price, legal fees, and stamp duty paid when you bought the property.

  • Costs of Disposal: This includes legal fees, estate agent fees, and any other costs incurred in selling the property.

  • Improvement Costs: If you’ve made significant improvements to the property (e.g., an extension, new kitchen), you can deduct these costs from the gain. However, routine maintenance and repairs don’t count.

Formula:

Copy
Adjusted Gain = Gain - (Costs of Acquisition + Costs of Disposal + Improvement Costs)

c. Annual Exempt Amount

Everyone in the UK is entitled to an annual exempt amount for CGT. For the 2023/24 tax year, the annual exempt amount is £6,000 for individuals and £3,000 for trusts. This means you can make gains up to this amount without paying any CGT.

Formula:

Copy
Taxable Gain = Adjusted Gain - Annual Exempt Amount

If your adjusted gain is less than the annual exempt amount, you won’t need to pay any CGT or file a 60-Day CGT Return.

d. Tax Rates for CGT

The rate of CGT you pay depends on your income tax band and the type of asset you’ve sold. For residential property, the rates are:

  • Basic Rate Taxpayers: 18%

  • Higher and Additional Rate Taxpayers: 28%

To determine your income tax band, you’ll need to add your taxable gain to your other taxable income (e.g., salary, dividends). If the total falls within the basic rate band, you’ll pay 18% on the gain. If it exceeds the basic rate band, you’ll pay 28% on the amount above the threshold.

Example:

Let’s say you’re a basic rate taxpayer with a salary of £30,000. You sell a buy-to-let property and make a taxable gain of £20,000. Your total taxable income is £50,000, which falls within the basic rate band (up to £50,270 for 2023/24). Therefore, you’ll pay 18% CGT on the £20,000 gain, resulting in a CGT liability of £3,600.

5. How to File a 60-Day CGT Return

Filing a 60-Day CGT Return can seem daunting, but it’s a straightforward process if you follow the steps below:

a. Registering for a Government Gateway Account

Before you can file a 60-Day CGT Return, you’ll need to register for a Government Gateway account if you don’t already have one. You can do this on the HMRC website. Once registered, you’ll receive a Unique Taxpayer Reference (UTR) number, which you’ll need to file your return.

b. Gathering Necessary Information

To complete the 60-Day CGT Return, you’ll need the following information:

  • Property Details: The address of the property you’ve sold, the date of purchase, and the date of sale.

  • Sale and Purchase Prices: The amount you sold the property for and the amount you paid for it (or its market value at the time of acquisition if it was a gift or inheritance).

  • Allowable Costs: Details of any costs you’re deducting from the gain, such as legal fees, estate agent fees, and improvement costs.

  • Income Details: Your total taxable income for the tax year, including salary, dividends, and any other income.

c. Completing the Return

Once you’ve gathered all the necessary information, you can complete the 60-Day CGT Return online via the HMRC website. The form will ask you to input details about the property, the gain, and any allowable deductions. You’ll also need to calculate your CGT liability based on the information provided.

d. Making the Payment

After completing the return, you’ll need to make a payment for any CGT due. HMRC accepts various payment methods, including:

  • Online Banking: You can pay via online banking using the HMRC CGT reference number.

  • Debit or Corporate Credit Card: You can pay using a debit or corporate credit card through the HMRC website.

  • Bank Transfer: You can make a bank transfer using the details provided by HMRC.

It’s essential to ensure that the payment reaches HMRC within the 60-day deadline to avoid penalties and interest.

6. Penalties for Late Filing and Payment

Filing your 60-Day CGT Return late or failing to pay the CGT due on time can result in penalties and interest charges. The penalties are as follows:

  • Late Filing: If you file your return after the 60-day deadline, you may face a penalty of £100. If the return is more than three months late, additional penalties may apply.

  • Late Payment: If you don’t pay the CGT due within 30 days of the deadline, you’ll be charged interest on the unpaid amount. HMRC may also impose a penalty of 5% of the unpaid tax if it’s more than six months late.

To avoid penalties, it’s crucial to file your return and make the payment as soon as possible after completing the sale of the property.

7. Common Mistakes to Avoid

Filing a 60-Day CGT Return can be complex, and mistakes can be costly. Here are some common mistakes to avoid:

  • Incorrect Calculation of Gain: Ensure you accurately calculate the gain by including all allowable costs and deductions. Mistakes in the calculation can lead to underpayment or overpayment of tax.

  • Missing the Deadline: The 60-day deadline is strict, and missing it can result in penalties. Make sure you start the process as soon as possible after completing the sale.

  • Not Reporting Jointly Owned Property: If you own the property jointly with someone else, each owner must file their own 60-Day CGT Return if they have a gain to report.

  • Ignoring Reliefs and Allowances: Make sure you take advantage of any reliefs and allowances you’re entitled to, such as Private Residence Relief or Lettings Relief.

8. Tips for Reducing Your CGT Liability

While CGT is unavoidable in many cases, there are several strategies you can use to reduce your liability:

  • Use Your Annual Exempt Amount: Make sure you use your annual exempt amount (£6,000 for 2023/24) to reduce your taxable gain.

  • Offset Losses: If you’ve made a loss on the sale of another asset, you can offset this against your gain to reduce your CGT liability.

  • Transfer Assets to a Spouse or Civil Partner: Transfers between spouses or civil partners are free from CGT. You can transfer assets to your partner to make use of their annual exempt amount or lower tax rate.

  • Invest in an ISA: Gains on assets held in an ISA are exempt from CGT. Consider transferring shares or other investments into an ISA to shelter them from CGT.

9. Conclusion

The 60-Day CGT Return is an essential requirement for UK residents and non-residents who sell residential property and make a gain subject to CGT. Understanding the rules, calculating your gain accurately, and filing the return on time are crucial to avoiding penalties and ensuring compliance with HMRC.

While the process can seem complex, taking the time to gather the necessary information, using allowable deductions, and seeking professional advice if needed can make it more manageable. By following the steps outlined in this guide, you can navigate the 60-Day CGT Return process with confidence and ensure that you meet your tax obligations.

Remember, the key to a successful 60-Day CGT Return is preparation and timely action. Start the process as soon as possible after completing the sale, and don’t hesitate to seek professional advice if you’re unsure about any aspect of the calculation or filing process. With careful planning and attention to detail, you can ensure that your CGT liability is accurately reported and paid, allowing you to move forward with peace of mind.

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