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Property sellers could be slapped with eight percent extra tax – HMRC sends out letters

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They claim that some sellers may have declared their Capital Gains Tax (CGT) incorrectly and will be asking them to double check their tax. Accountancy company BDO said people who have sold a property within the last four years may be receiving these new nudge letters.

The CGT disposal must be declared in the correct section of their tax return and HMRC has advised that all residential property disposals requiring CGT payment must be paid by the financial year end.

CGT is due when a residential property that is not the seller’s main home is sold.

Likewise, any seller making a gain from this sale which is not relieved by the Private Residence Relief must declare this to HMRC. 

Gains from the disposal of these properties must be included on the CGT pages within the “residential properties (and carried interest)” boxes on their Self Assessment tax return.

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The extra eight percent due by some property sellers is caused by the mix up with these two boxes as CGT rates are higher on residential property disposals than those claimed as “other properties, assets and gains”.

Dawn Register, Head of Tax Dispute Resolution at BDO said: “This is yet another example of HMRC using land registry data to check up on taxpayers reporting and paying tax on property deals.

“If you have sold a property in the last four years, HMRC will know and will chase up to make sure you have paid the right amount of tax.

“So if you’re not 100 percent sure you got the tax right, it is always sensible and cheaper to get it checked by an expert before HMRC come calling,” she cautioned.

They explained: “The Capital Gains Tax rates charged on residential property disposals are higher than those charged for ‘other properties, assets, and gains’. Rather than being 10 percent at the basic rate or 20 percent at the higher rate, the rates on residential property disposals are 18 percent and 28 percent – so eight percent higher.

“If people disposing of residential properties include these in the ‘other properties assets and gains’ boxes rather than the ‘residential properties (and carried interest)’ boxes, then they will be paying eight percentage points less than they should.”

An HMRC spokesperson commented: “We are writing to customers who we believe have sold a residential property, which had a capital gains tax charge, but who may have declared this in the wrong part of their tax return leading to tax being underpaid.”

“We want to help people better understand their Capital Gains Tax obligations and give them the opportunity to correct any errors they may have made on their 2019/20 Self Assessment return by making an amendment to that return, before the deadline of January 31, 2022.”



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