CGT – residential property gains – new HMRC guidance

“For non-corporates the rate of tax that applies to residential property gains is either 18% or 28% see CG10245. Additionally, the identification of this type of gain is relevant for the purposes of the Non-Resident Capital Gains rules see CG73700C, CG73920C. For UK residents that may be required to pay CGT and file a return through the CGT on UK Property Account see CG-APP18C.

A summary of the rules follows:

A person disposes of residential property where:

1. the land consisted or included a dwelling
2. the interest in land subsisted for the benefit of land that consisted or included a dwelling
3. the interest in land subsists under a contract for the acquisition of land where a building is to be constructed or adapted for use as a dwelling.

Consideration is given to the period to the date of disposal.

If the interest in land disposed of results from interests acquired at different times the period considered starts from the time of the first acquisition.

A building is a dwelling at any time when:

1. it is used or suitable for use as a dwelling
2. it is in the process of being constructed or adapted for use as a dwelling
3. it is not an institutional building (see sch1B para 5(3)).

Land that at any time is or is intended to be occupied or enjoyed with a dwelling as garden or grounds is taken to be part of that dwelling. This may include land that is garden or grounds outside of the permitted area for private residence relief purposes (see CG64350P and CG64800P)

Special provisions apply where buildings are temporarily unsuitable for use as a dwelling (para 6) and where a building has undergone works (para 7). Also rules on apportionment of a gain are within para 2.

The full detail of the rules can be found in Schedule 1B TCGA. In most cases identification of what the residential property gain is will be straightforward. E.g. a residential property that was a buy to let investment would give rise to a residential property gain.

In more complicated cases you may need to refer directly to the statute but will need a clear understanding of precisely what the asset was and what if any changes there may have been during its ownership by the person making the disposal.

In all cases and in particular those that involve construction or development consideration should be given to considering whether a charge to Income Tax would take priority over a Capital Gains Tax charge.

A residential property gain that might have been deferred e.g. with an EIS deferral relief claim, remains a residential property gain if it is brought back into charge on a later disposal.”