The CGT 60 day rule explained

The UK’s Capital Gains Tax (CGT) 60-day rule is a critical regulation for individuals disposing of residential properties that are not their primary residences. This rule requires taxpayers to report and pay any CGT liability within 60 days of completing the disposal of such properties. 

What is the 60-day rule?

Introduced in April 2020, the CGT reporting rule originally mandated that individuals report and pay CGT within 30 days of disposing of a UK residential property. This rule applied to situations where a property was sold, gifted, transferred into a trust, or exchanged. However, in response to challenges faced by taxpayers, the deadline was extended to 60 days on October 27, 2021. The extension provides more time for taxpayers to gather the necessary documents and complete their filings accurately. 

Who needs to report?

Not everyone is required to report under the 60-day rule. The rule primarily targets disposals of properties such as second homes, holiday homes, houses of multiple occupancy (HMOs), and buy-to-let or buy-to-sell properties. The sale of a primary residence usually qualifies for private residence relief, exempting it from CGT reporting. However, non-UK residents are required to report any disposal of UK residential property, even if there is no tax to pay or if they have not made a profit. 

Calculating the gain

The gain from a property disposal is calculated by subtracting the purchase price from the sale proceeds or the fair market value if the property was gifted (for example, passing on a property to a child). Taxpayers can further reduce the taxable gain by subtracting allowable expenses, such as solicitor fees, estate agent fees, and costs of significant property improvements. The annual tax-free allowance (currently £3,000) can also be deducted from the gain. The remaining amount is subject to CGT at rates of 18% for basic rate taxpayers and 24% for higher or additional rate taxpayers. 

Reporting and paying CGT

Taxpayers must report the gain and pay the CGT through HMRC’s online services. It’s crucial to register for a Government Gateway account to complete the filing. The deadline for reporting and paying the tax is 60 days from the completion date, which is when the legal transfer of ownership occurs. 

Penalties for late filing

Failing to report within the 60-day window can result in fixed penalties, and interest charges may be applied to unpaid CGT. However, reporting late is better than not reporting at all, as penalties increase with further delays. In certain cases, such as serious illness or bereavement, taxpayers may appeal penalties or request mitigation by providing supporting evidence. To avoid late filing, it is always beneficial to have the support for a tax adviser, who can ensure that you report within the deadline and without mistakes. 

Improvements and future prospects

To address these issues, HMRC has worked with the Office of Tax Simplification (OTS) to improve guidance for taxpayers, particularly those filing without professional help. While the extension to 60 days is seen as a positive change, some advisers advocate for a complete overhaul of the in-year reporting system. However, such a comprehensive change seems unlikely in the near future due to the cash flow benefits that in-year reporting provides to the Exchequer. 

Key takeaways

• The CGT 60-day rule requires individuals disposing of certain residential properties to report and pay CGT within 60 days of completion. 
• Exceptions to the rule include the sale of a primary residence, which typically qualifies for private residence relief. 
• Non-UK residents must report any UK residential property disposals within the same 60-day period, even if no tax is due. 
• Accurate calculation of the gain, timely reporting, and payment are essential to avoid penalties. 

For detailed guidance and assistance with CGT reporting, it’s advisable to consult a tax adviser or refer to HMRC’s resources.