The non-resident capital gains tax (NRCGT) regime has applied since 6 April 2015, but the number of cases emerging highlights a problem with HMRC’s policy on penalties, both in terms of consistency of application and the thorny question of reasonable excuse.
From 6 April 2015, a non-resident taxpayer must file a return with HMRC, within 30 days of the completion of a disposal of residential property. This requirement applies to non-resident individuals (including an individual in the non-resident part of a split year), companies and trustees. The NRCGT return must include a self-assessment of the capital gains tax due (or the loss arising) on the post 6 April 2015 gain or loss.
The tax itself must then be paid within the same 30-day period, unless the taxpayer is already within self assessment (eg as a non-resident landlord) when the usual payment deadline of 31 January following the year end applies. But – and it is a big but – the extension to the payment deadline does not remove the obligation to file an NRCGT return within 30 days of the disposal and a return still needs to be filed within the 30 day window even if the tax due is nil.
HMRC has removed the reporting requirement for some tax non-events: ‘no gain/no loss’ disposals (eg between spouses or group companies), and the grant of a lease for no premium to a third party.
Such moves are undoubtedly sensible, but the overwhelming problem with the NRCGT regime remains: the potential for substantial penalties to arise where there is no liability to tax.
A Freedom of Information request suggests that penalties have been levied in 4,022 of 7,356 returns filed late, raising over £3.3m in penalties, nearly half of the total tax raised.
Cases so far
Cases challenging the penalties in first tier tribunals (FTT) have met mixed success: in Rachel McGreevy v HMRC (TC06109), McGreevy’s claim that she was unaware of the introduction of the 30 day filing requirement and therefore had a reasonable excuse met with approval and – for HMRC – some rather withering put downs from the judge. The judgement is well worth a read for those frustrated with HMRC’s persistent ‘customer’ speak.
However, even if McGreevy did not have a reasonable excuse, there were “special circumstances” which would prevent HMRC’s imposition of penalties: there could be no intention to enforce compliance on an individual who already had an obligation to make a return under self assessment.
Broadly the same reasoning was followed in Patsy-Anne Saunders v HMRC (TC06173).
The next two cases on NRCGT penalties (David & Jennifer Hesketh v HMRC (TC06266); Robert Welland v HMRC (TC06265) followed broadly the same fact pattern, with the same reliance on the non-resident individuals’ ignorance of the law for failure to comply with their NRCGT reporting obligations.
However, in those cases the judge took the view that “parliament must expect citizens to be proactive in taking responsibility for ensuring that they obey the law…” and HMRC had discharged its obligations by publishing information about the NRCGT regime on its website.
The fact that no tax was due did not make the penalty disproportionate, as HMRC must have a method of enforcing returns to establish whether there was a liability.
All the above cases are FTT rulings, and therefore create no binding precedent. Perhaps unsurprisingly, in my experience, HMRC appear minded to adopt the reasoning in Welland and Hesketh when faced with appeals against late filing penalties, and it is not conceding its position.
The standard assertion HMRC makes is that “all the relevant information has been clearly publicised on Gov.uk website”. However, a search on the Gov.UK for changes to non-resident landlord taxation generates nearly 90,000 results, with no mention of capital gains tax on the first page of results.
Once a result is finally located, it simply refers to capital gains tax for non residents, with no mention of any new or special reporting obligations.
I can’t help feeling that the decisions in the McGreevy and Saunders cases take a fairer account of the obstacles placed in the taxpayers’ way in discharging their obligations, but until a case progresses to the Upper Tribunal, it seems to be very much pot luck on penalties.