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Latest HMRC madness for residential gains?

Do they really mean this statement in their latest guidance

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I was discussing the budget yesterday and the subject of residential gains and the new system arose.  Not IN the budget of course, but it is a new development and the new rules in the draft Finance Bill make it more likely that a problem will arise.  I suggested that it may be safer, as good practice, to ALWAYS notify HMRC using their new system online when ANY disposal of residential property occurs if any gain no matter how small was likely to arise.  A delegate suggested that he had been advised that if the gain was within the Annual Exemption this was not necessary.  In the HMRC guidance issued today it says this "the gains (including any other chargeable residential property gains in the same tax year) is within their tax free allowance (called the Annual Exempt Amount)".  Given that gains is plural it should be "are within" but that is not my point.  A taxpayer decides to sell a property in June 2020 and a gain arises or £5,000 (say) on this disposal.  If that is the only disposal in the year then the revenue statement is true BUT - suppose the same taxpayer is approached by a tenant of another property that he owns in February 2021 and agrees to sell that property, because it's a good offer, and realises a gain of £300,000 on this disposal.  Clearly it is not "within their tax free allowance" and that applies to the first disposal as much as the second.  As I see it BOTH gains need to be reported and as the gain in June 2020 was not reported within 30 days a penalty become payable.  If so ALL disposals possibly giving rise to a gain of any amount, no matter how small, should be disclosed for safety's sake shouldn't they?  If the later gains were not property gains you could use the legislation to offset against the property gain first and maybe dodge the bullet?

Whilst on the same topic another thought occurs.  Another taxpayer enters into a contract to sell residential property in March 2021 and a gain of (say)£250,000 arises.  However completion of the contract is delayed by agreement between the parties until September 2022.  The gain arises in 2020/21 and should be reported in that return by 31 January 2022 but completion, which triggers the obligation to report under the new rules, occurs 8 months after the first return has already been submitted.  I can see a lot of confusion ahead over this one...

Or have I missed something along the way?

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By ireallyshouldknowthisbut
13th Mar 2020 17:46

@paul, as even I don't think they have even thought about any of this.

There is also the glaring issue of computing the tax due for a client with a variable income under the HR threshold. What if we think their income will be £15,000 in April, but its actually turns out to be £65,000 by the end of March? HMRC will see it as a late payment of £3,500......

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By SXGuy
13th Mar 2020 21:11

I was under the impression that the reporting of a gain arising from residential sale and the payment due is on account until a tax return is due to be filed.

So based on that, if you reported a gain when it happened, and paid the tax you believed was due, its held on account until the actual tax due is calculated from the Sa and the balance is paid the following Jan?

Unsure what would happen if there were a further gain to report mid year prior to Jan but surely it would be a case of amending the report and paying the additional tax on account due?

But I do take your point re gain under the annual exemption. I could only hope that if a further gain pushed it above the exemption then you'd have 30 days from them to report all of it.

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By richard thomas
16th Mar 2020 12:36

On the first point, the calculation of the notional CGT to which the disponor is liable is calculated without reference to future gains so that if the gain is within the AEA no return is required as there is no liability. This is the case as a result of para 6(1)(b) & 7 Sch 2 FA 2019 which refer to the amount of CGT notionally chargeable as at the filing date (of the Sch 2 return in question).

When the second disposal occurs then the same notional CGT calculation has to be made as at that later date and this time it will be made without any AEA entering the equation except insofar as it was not used up in the previous calculation.

It follows from this that, not for the first time, the Revenue statement is wrong. It is typical of anything about tax on gov.uk in that by trying to make it simple they either get it wrong or overlook a lot of important qualifications. What I think they had in mind here was the rule in para 3(2) that where there are two or more disposals with the same completion date then a single return is required. So if the aggregate of those gains does not exceed the AEA no return is required, but if the aggregate does exceed the AEA a return is required as is a PoA based on the excess of the gains over the AEA.

Thus I cannot see any reason why the calculation of the notional CGT on the section disposal could and should affect the fact that quite lawfully no return was made of the first disposal by reference to the facts as at the filing date that would have applied to a return of the first disposal had one been required.

Bear in mind that the PoA is just that. It is not expected that it will be precisely accurate - paras 14 and 15 about reasonable assumptions, estimates etc.

There is no provision for revisiting a return or a non-return, save para 8 and 9 which allows or repayment of a PoA if it has become excessive - eg is there is a later loss.

As to your second question para 5 Sch 2 says that if the filing date for a return under the Schedule is later than the date of the actual return including the disposal or the filing date for the return for that person, no Sch 2 return is required.

As to the comment by ireallyshouldknowthisbut see para 14 Sch 2 about reasonable estimates.

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