Property Capital Gains Tax

Estimating other income for the year of disposal

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Individual subject to property Capital Gains Tax which will involve both the lower and higher rate. When submitting details of the gain and calculating the the tax what leeway is there in estimating the 'other icome' to determine exactly what amount of the gain will be charged at the higher rate. The other income is not large and predominently bank interest receiveable (and possiblly a future pension drawdown, value not yet determined). What is HMRC's approach when the other icome is underestimated causing more of the gain to be charged at the higher than intially anticipated when submitting the Capital Gains return?

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By Paul Crowley
25th May 2024 12:33

If he is going to prepare a tax return for the year then I would always estimate the income on the low side. Any extra tax gets rolled up with the normal tax due.
Estimate too high and you will need to revise the CGT form and it takes ages to get the refund.
A draw down will get taxed at source.
I would not recommend having a draw down in the same year as a large capital gain. A tiny bit of planning can save higher rate tax on these.

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Replying to Paul Crowley:
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By KMACS
27th May 2024 07:11

Are there any consequences to underestimating the other income though? Underestimated income will have the effect of understating the CGT, could any penalties or interest result?

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By Matrix
27th May 2024 08:39

Assuming you have taken reasonable care and have kept a copy of the estimate etc then there shouldn’t be any interest since the due date of any tax due on the CGT included on an SA return is the usual date so 31 January. If, however, there were errors in the CGT return then these should be corrected by submitting a revised return so interest could arise if the tax previously due is now higher.

This is my practical answer based on my experience and reading posts on here. Others may provide the technical answer.

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Replying to Matrix:
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By Paul Crowley
27th May 2024 20:15

Agree
If the gain is correct, then it has been taxed
If the amount of HR gain is higher than than the original estimate then the 31 Jan balance due slurps it up.

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Replying to Paul Crowley:
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By Tax Dragon
28th May 2024 07:00

+1

And on OP's actual question about interest and penalties... I have no experience, but then our estimates are sensible and defensible. In short, we take reasonable care and have never been challenged. The penalty regime does apply for CGT though, if you don't take reasonable care.

Err under where erring is unavoidable, as Paul says, not over. But I don't believe his "Estimate too high and you will need to revise the CGT form".

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Replying to Paul Crowley:
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By D Rixson
03rd Jun 2024 09:53

One of my clients overpaid the CGT on property disposal due to his estimated income. His SA return was submitted November 2023 and still waiting for HMRC to process the overpayment, thankfully only £350. When I chased I was told it would take 17 weeks to be processed!

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By Retrocanary
03rd Jun 2024 12:40

When I see things like this I can't help wonder why we haven't all gone a bit French and piled some tires up outside HMRC's offices and set fire to them. What a Kafkaeque obscenity it's become!

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By More unearned luck
03rd Jun 2024 19:58

My understanding is that if you answer the question asking if the return contains estimates figures in the affirmative, then no penalties will ensue. This must be subject to it not applying to any estimates being egregiously or deliberately bad.

The online instructions to that question read:

"Select ‘yes’ if any of the amounts in this return would impact the amount of Capital Gains Tax owed at this point in the tax year. For example, solicitor’s fees when a property was bought.

"If you select ‘yes’, you’ll need to provide the final amounts to HMRC later."

Which suggest to me that HMRC don't understand the difference between estimates and provisonal figures. In HMRC's example the legal fees on purchase are likely to be estimated because the paperwork is no longer extant and memories fade. It is unlikely that this estimate would be corrected later.

But on the other hand perhaps the words "at this point in the tax year" are meant to exclude estimates, ie you only answer 'yes' to provisional figures, but then why ask about estimates when you mean provisional figures?

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By Homeworker
07th Jun 2024 16:41

This question highlights a real problem for those disposing of property early in a tax year. I have a client who did so and we estimated his self-employed earnings to the best of our joint ability. In fact he ended the year with a loss, so the CGT was overpaid by around £650.
Trying to phone HMRC after the return was filed was a nightmare but it seems to be the only way to have a CGT overpayment refunded. It took three attempts totalling more than 3 hours and a call just after 8.00 a.m. before I spoke to someone, who promised the refund would be issued in about 10 weeks. We are at 5 weeks and waiting.

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