Buy-to-let landlords across the UK are on notice that failure to personally file a capital gains tax return within 60 days of property disposal could result in significant tax fines. This comes amidst the UK’s largest surge in interest rates in recent history, prompting many property investors to sell off assets due to the escalating cost of borrowing.
Rick Schofield, a tax partner at Azets, one of the UK’s top 10 accountancy firms, gave this stern warning, highlighting that a growing number of landlords are finding themselves unable to manage increased mortgage debts. He explained, “We have witnessed numerous cases of landlords cashing out as they struggle to meet rising mortgage costs, with rental income insufficient to cover these hikes.”
Schofield commented on the impact of the Bank of England’s sequential interest rate increases, which have escalated at the fastest pace seen in a generation and now stand at a level not witnessed in nearly 15 years.
Reflecting on the current economic climate, he added, “The Bank Rate was last this high, at 4.5%, in October 2008 amidst the global financial crash. This spells the end of an era of cheap debt, which saw rates plummet to an all-time low of 0.1% during the pandemic.”
In the face of rising inflation and the possibility of further rate increases unless living costs begin to decrease, landlords, especially those with high loan-to-value portfolios, are acting preemptively to avoid potential repossession disasters.
Schofield however, emphasised the overlooked responsibility of landlords in this situation, stating, “Some landlords, upon exiting the market, may not be aware of the necessity to personally file a capital gains tax return to HMRC upon disposing of a rented property. This requirement and process is not widely understood among landlords.”
Fines for non-compliance with this requirement start from £100 if the form isn’t submitted within 60 days, rising to £300 or 5% of the capital gains tax if unresolved three months after the initial deadline. Schofield warned, “If landlords have numerous disposals totalling £3 million and fail to submit the form in time, HMRC could collect up to £150,000.”
The tax expert also mentioned that the process of reporting capital gains on properties sold is complex, requiring landlords to have their own gateway account, something advisors can’t do on their behalf.
Data from the Office for National Statistics shows record high rents in the UK, with median monthly rent at £800 for England and £1,475 for London. Government figures indicate that 4.6 million households, or 19% of all English households, rent from a private landlord, a significant increase from 3.1 million in 2008-09.
Schofield concluded by emphasising the importance of understanding the capital gains tax return process and the 60-day deadline. He said, “Whilst many landlords are thriving, others, including accidental landlords or those overly leveraged, are selling up to avoid financial hardship due to the interest rate climate and rampant inflation. However, some are selling not out of necessity, but as a means to fund retirement. With around 2.74 million landlords in the UK, the significance of understanding why the 60-day deadline matters and its distinction from annual self-assessment tax returns cannot be overstated.”
