Business Surgery: Thinking of selling your buy to let property? Don’t get caught out, says Calvin Roll, of Lovewell Blake, in Bury St Edmunds

With more residential landlords exiting the market, HMRC reporting rules on disposals are more relevant than ever says Calvin Roll of Lovewell Blake.

With increasing tax and regulation making the role ever harder – and the prospect of softening house prices - many residential landlords are looking to sell one or more of their properties.

For many who bought their investment properties a few years ago, they will be making a healthy profit – even allowing for a slight fall in recent months, average house prices in the UK have grown by nearly 30 per cent in five years.

Since 6 April 2020, UK residents who dispose of UK residential property have had to report the disposal and pay their capital gains tax liability to HMRC shortly after completion. In October 2021 HMRC extended the period from within 30 days to within 60 days of completion, but many are still missing that deadline.

The rule doesn’t apply to your main residence, provided you lived in the property throughout the period of ownership (in which case no capital gains tax will be due), nor does it apply to disposals of overseas properties, where gains still need to be reported on the annual self-assessment tax return. Transfers between spouses are also exempt from the requirement.

Landlords who fail to report disposals within the 60 day limit are likely to face late filing penalties from HMRC, as well as late payment interest in respect of any capital gains tax due – in fact, a substantial sum has already been levied in penalties against those not meeting the strict deadline. Given that under the system which prevailed before April 2020, a gain made early in the tax year might not have to be reported until as much as 21 months later, the potential for penalties and big interest bills are enormous.

HMRC has released a digital service to enable taxpayers to report disposals, and to pay the tax. To use this requires a Government Gateway account, so that you can create a UK property account. Disposals will also need to be reported on self-assessment returns if you are already in self-assessment, though credit will be provided within self-assessment for capital gains tax already paid.

Disposals should be reported where there is a capital gains tax liability, and with CGT annual allowances halving this year, the number of landlords disposing of UK rental properties that will be caught by the reporting rules will inevitably increase.

If it’s the right time to dispose of a property, then landlords shouldn’t let this rule put them off. It’s just vital that they realise the tight deadlines for both reporting a capital gain and paying the tax due on it – otherwise they might be making an expensive error.

Calvin Roll is a tax specialist at Lovewell Blake, based at the firm’s Bury St Edmunds office.