HRMC Targets Sellers of Second Homes

HMRC is testing a radical policy of writing to taxpayers about the need to report and pay the capital gains tax from selling second homes and residential letting properties.

From April 2021, it has been necessary for taxpayers to report the sale of a second home or residential letting property and pay all the necessary capital gains tax (CGT) within 30 days. This is required to be done via the new UK Property Account.

The rules surrounding this reporting requirement is still unknown to most taxpayers and the professional tax and accountancy bodies have been battling with HMRC to improve the operation of the UK Property Account, since its inception.

The only concession that HMRC have made is they have doubled the CGT reporting and payment deadline to 60 days after the completion date, but many vendors are still unaware of the requirement to report this before completing a self-assessment tax return to make the declaration.

Test letters

In August 2022 HMRC finally took some proactive action in this area. 

As an experiment, it issued around 1,200 letters to taxpayers, where it held information that showed that the individual may have been either considering selling or had recently sold a UK residential property. Where a tax agent was appointed a copy of this letter was also sent to the taxpayer’s agent. 

HMRC is known to access data from the Land Registry for such property-based campaigns, but for the “preparing to sell” targets HMRC must have scraped data from estate agents’ websites of properties advertised for sale.  

Inadequate FAQs  

It is worth reading the appendix to the HMRC letter, which includes 15 FAQs and answers designed to help the taxpayer understand whether they need to report the sale, how they report, and how to calculate the gain.

We would argue that information is not sufficient to provide answers to all the points a taxpayer will need to understand when calculating and reporting a gain. 

On some matters the information is misleading by omission – for example it doesn’t mention that the stamp duty land tax/land and buildings transaction tax/land transaction tax paid on the acquisition of the property can be deducted when calculating the gain. The FAQs also don’t explain how to report and calculate the gain on the disposal of a jointly owned property, which is a very common situation.  

Ask for help 

Finally, at no point in the HMRC letter or the list of FAQs does HMRC suggest the taxpayer should talk to their accountant before attempting to complete the UK Property Account to report the gain.  

Whilst we cannot complete the property account on your behalf, we can calculate the gain to ensure maximum tax efficiency, so please let us know if you need any assistance with this.