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Ram Varma FCCA advises on

Capital Gains Tax

Ram Varma has been advising clients on their personal and business tax positions for a number of years. A common area of confusion for clients, that Ram regularly demystifies, is that of capital gains tax, relating to both residential property and cryptoassets.

What does HMRC require on the sale of a residential property and what are the deadlines?

When a UK residential property is sold HMRC require a report from the seller of the capital gains tax calculation and payment of the capital gains tax within 60 days of the completion date. Importantly, the tax year in which it will be included on the tax return is determined by the exchange date.

The report submission process is not as easy as it should be and Ram assists clients with setting up the required online capital gains tax account for UK property. The details and the figures then also need to be included as normal on the client’s personal tax return after the end of the tax year. This is to ensure that the tax calculated is still at the correct tax rate once all other income sources for the tax year have been included.

What are the tax requirements for cryptoassets gains?

There has been considerable chatter about cryptoassets and the related tax liabilities that may be accruing for those with gains on their investments. In most cases, the tax treatment is that of capital gains tax as opposed to income tax, which is either taxed at 10% or 20%, depending on the client’s total income from all sources, very similar to the tax treatment of share investments. The gains and just as importantly, the losses on cryptoassets must be included on the annual personal tax return. The calculations can be complex to ensure all tax reliefs are claimed for, including past losses.

How much tax is payable on the sale of an inherited property?

When a property is inherited, the beneficiary (the new owner) has a starting (probate) value, instead of the usual purchase price for use in the future capital gains calculation. If the property is eventually sold, there will be a capital gains calculation to prepare unless the property has been lived in by the beneficiary as their main home for the entire period since inheriting the property. Tax is calculated using the probate value, the selling price, the associated costs such as agent fees, renovation costs, solicitor fees etc. There will be other reliefs such as primary resident relief to claim if the property has been lived in for part of the ownership period as a main home. Again, tax would be payable within 60 days and the capital gains for UK property tax account would need to be set up and a report submitted to HMRC.

What tax reliefs are there for properties let out when they are sold?

Having owned a rental property that the client has let out for a number of years, they will be required to calculate and pay capitals gains tax to HMRC, again within the 60 day period from the date of completion along with the submission of the figures via the online UK Property capital gains tax account.

There are tax reliefs available if this property was at some point the main home of the client, this is primary residence relief. There is also a relief for the last 9 months of ownership that is deemed to be occupied by the client if it was at some point elected to be their main home. There is no longer a relief called ‘lettings relief’ unless the client lived in the property during the tenancy, put another way, during the period in which the property was let to tenants. This is an unlikely scenario, hence the loss of this relief in most cases.

Are the capital tax rules different for separated and divorced couples when selling the marital home?

The rules on capital gains tax are somewhat adjusted for separated couples to ease the tax burden that would arise if the normal rules were applied to those who were no longer living in a property due to marital circumstances changing. For example, if for separation of asset purposes, it is decided that a transfer of asset/s will be required from one spouse to another, this can still be done without any tax consequences in the first year of permanent separation, there is no requirement to be living together at the time of transfer.

Usually the family home is the principal private residence and a gain on its sale is exempt from tax. Issues can arise if more than one property is owned and depending on which spouse moves out of the family home, whether they buy or rent in the meantime and who owns the original family home after the divorce can affect tax.

After the first year of separation and before the decree absolute transfers between spouses will be deemed at market value and tax may be payable. However there are exemptions, especially where the family home is transferred or sold within 18 months of separation, or where the transfer is after 18 months but is part of a financial settlement, or the property was the main or only home and the departing spouse has not yet elected any other property as their main home.