Capital Gains Tax novice

ljayljay

Approximately 2 years ago I inherited a share of house and land from a relative. Due to probate, executor enquiries, covid etc. I have only just got around to marketing both the property and land. Early signs suggest that the property could sell in the near future for higher than the estate valuation. However, my share of the capital gain is still likely to be lower than the £12,300 allowance.

Moving forward there is then the possibility of further gains when the land sells. Will HMRC basically rely upon me to do the calculations, keep records and only notify them when I believe I have exceeded my allowance? or do I just forward the information/evidence and leave it to them to determine if I have anything to pay? I am a BR taxpayer and believe that there may be different rates for property and the land.

Obviously, I am fine with paying all taxes due but have never had any involvement with self-assessment or capital gains disclosures in the past so unclear on the process.

Any advice would be greatly appreciated.

Jeremy535897

You have to report and pay capital gains tax within 30 days of completion of a sale of UK residential property. See:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

If no capital gains tax is due, you do not need to report, but if the sale proceeds exceed 4 times the annual exemption, you will need to report the capital gain by completing a self assessment tax return, if you do not already complete one.

For rates of capital gains tax, see:
https://www.gov.uk/capital-gains-tax/rates

Is the land part of the grounds of the residential property?

ljayljay

Jeremy535897 said:

If no capital gains tax is due, you do not need to report, but if the sale proceeds exceed 4 times the annual exemption, you will need to report the capital gain by completing a self assessment tax return, if you do not already complete one.

OK so am I right in thinking practically every property sale has to be declared irrespective of capital gain or even loss, since 4 times personal allowance is only £49,200. My situation would be original valuation for probate £100,000, sold for £130,000 (after fees). My share, one third.

Jeremy535897 said:

Is the land part of the grounds of the residential property?

No, just a seperate plot of land, used for agricultural purposes.

ljayljay

ljayljay said:

OK so am I right in thinking practically every property sale has to be declared irrespective of capital gain or even loss, since 4 times personal allowance is only £49,200. My situation would be original valuation for probate £100,000, sold for £130,000 (after fees). My share, one third.

Actually just realised my share will be less than 4 times i..e. £130,000/3 = £43,333.

However, selling land may take it over later in the year.

Jeremy535897

You are correct, except that it is the proceeds before selling costs, not after deducting selling costs, that you use to see if you exceed the 4 times annual exemption. See:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/876771/SA108_Engish_notes_2020.pdf

The rate of capital gains tax on the agricultural property will be lower than the gain on the residential property. It may be better, if you can, to sell the two assets in different tax years, if you would otherwise pay capital gains tax, unless they are worth more together than being sold separately.

ljayljay

Right, that is interesting and also good to know that costs are not deducted, although in my case the figure would probably be more like £133,000/3 = £44,333 so still below the reporting threshold.

I take your point about different tax years, in an ideal world the property would have been sold in 20/21, but with 1 day to go that isn't going to happen now.

So, initially with regards to just the property I understand from above I will most probably not need to report. I now just have to get my head around the process regards the land, especially as there appears to be different deadlines for different assets such as payment within 30 days of selling property. 

However, going back to my original question, after selling the land I may go over the £12,300 allowance. Will I then be expected to immediately aggregate my gains and report as capital gains? Just to add to the complexity there are also other plots of land to be sold at some stage. In an ideal world it would seem to be easier just to do a self-assessment at the end of the tax year rather than to second guess my capital gains liability, if that makes sense.

I have only ever dealt with tax via PAYE so this is all a steep learning curve so much appreciate the guidance given.

Jeremy535897

You only need to report and pay tax within 30 days of completion of the sale of a residential property if, when aggregating all gains in the tax year to the date contracts are exchanged on the residential property, there is capital gains tax to pay. This would be the case if, for example, you sold the agricultural land first, and then the gain on the residential property took you over £12,300 in aggregate gains. If the transactions are the other way round, you only need to pay the capital gains tax on the normal due date, which is 31 January after the end of the tax year. You will need to file a self assessment tax return in both cases.

ljayljay

Understood, very clear, thanks.

macman

Assuming that the agricultural land is currently rented and bringing in some income, why don't you hold onto it until tax year 22/23 commences and then dispose of it, thus avoiding pushing you over the CGT allowance for 21/22? 

ljayljay

The land isn't currently rented but up for sale as an option with the house. However, in reality the house will probably be sold on its own. 
Like you say selling some land in later tax year may be an option but depending on the date, gain & just a third share each the capital gains shared between three may be small if non-existent. 
To be honest I don't have a big problem with paying the taxes due but just wanted to clarify the declaration process.