Owners of investment properties and second homes may decide to sell up for a variety of reasons. They may wish to take advantage of a more buoyant market as buyers rush to beat the reduction in the residential SDLT threshold from 1 April 2025. The end of the favourable tax regime for furnished holiday lets may see landlords sell up, while those sitting on a large capital gain may decide to realise that gain while the higher rate of capital gains tax on residential gains remains at 24%. Whatever the reason for the sale, where a capital gains tax liability arises on the disposal of a residential property, there is a limited window in which to report the gain to HMRC and to pay the capital gains tax due on that gain.

Residential property gains

While no capital gains tax is payable on a property that has been the owner’s only or main residence throughout their period of ownership, a capital gains tax liability may arise where this is not the case and private residence relief (alone or in conjunction with other reliefs, such as lettings relief) does not shelter the gain in full. This may be the case where the property has been used as a second home or has been let out.

Residential capital gains have their own rules.

Reporting the gain

Where a capital gains tax liability arises on the disposal of a UK residential property, this must be reported to HMRC within 60 days of the completion date. Where the property is jointly-owned, each co-owner must report their own gain.

A dedicated online service exists for reporting residential property gains, and the seller will need to set up an account to report the gain and pay the tax. This can be done online at www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020.

The following information will be required:

· address and postcode of the property;

· date of acquisition;

· date of exchange of contracts on the sale;

· date of completion of the sale;

· purchase price (or market value where relevant);

· sale price (or market value where relevant);

· costs of purchase and sale;

· cost of any improvements;

· details of any available tax reliefs or exemptions.

In the event that the seller is unable to use the online service to report the gain, they can instead contact HMRC and request a paper form.

Paying the tax

The seller must also pay the capital gains tax due on the residential property gain within 60 days of completion. This is the best estimate of the capital gains tax due at the time, taking account of any available annual exemption or capital losses. Capital gains tax on residential property gains are taxed at 18% to the extent that the seller’s income and gains do not exceed the basic rate band (£37,700 for 2024/25) and at 24% thereafter.

Payment can be made online through the online account using a debit or corporate credit card or by approving a payment through an online bank account. Payments can also be made by bank transfer or by cheque. The 14-character capital gains tax payment reference should be quoted.

There may be an adjustment once the overall capital gains tax position for the year is known. For example, the realisation of losses later in the tax year may give rise to a repayment. The position will be finalised in the Self Assessment tax return.

Remember to comply

Interest and penalties will be charged where a taxpayer fails to report and pay capital gains tax on a residential property gain within the required 60-day window.