Experts are warning that buy-to-let landlords and other property owners are at risk of financial penalties due to an obscure change to tax rules.
From April, the deadline by which property owners with taxable gains on residential properties are required to pay tax will decrease from up to 22 months to just 30 days.
This means that after 6 April, UK residents who sell a residential property which that creates a capital gains tax (CGT liability) will be required to submit a one-off tax return to HM Revenue & Customs (HMRC) within 30 days of the sale being completed.
Under the current system, property owners have until January 31 (the self-assessment tax deadline) in the tax year following the sale to complete a return and pay any CGT. Therefore, depending on the date of sale, the tax is due between 10 and 22 months after the disposal of the property.
The rule changes were first announced by the Government back in 2015, but they were then pushed back to 2020 in the 2017 Budget and many in the industry are worried that sellers may be unaware of these new rules.
The reforms apply to properties sold after 6 April 2020 and will only affect property owners who have sold a residence which creates a capital gain, such as buy-to-let landlords and those selling second homes.
People who own one property that they live in as the main residence, or those who are selling a property and exchanged contracts in the tax year before 5 April, but completion takes place after 6 April, will not be affected.
Those who miss the tax deadlines will face penalties for both late filing of returns and late filing of tax. Late filing of returns results in an initial £100 penalty, plus additional charges of £10 per day after three months.
Paying late is covered by a different penalty scheme where individuals are fined 5 per cent of the unpaid tax at 30 days, six months and 12 months.