Capital gains reporting SNAFU eased by HMRC FAQsby
HMRC issued new guidance on the operation of the UK Property Reporting Service. Helen Thornley highlights the key points and where further areas of uncertainty need addressing.
The problems surrounding capital gains tax (CGT) repayments covered in my last article included an HMRC workaround on what to do when a repayment of CGT from an earlier property report arises on completion of a self-assessment return. In these cases, taxpayers will have to ring HMRC to get the overpayment offset against other self-assessment liabilities - or repaid if appropriate.
HMRC’s new FAQ document (which is not yet on gov.uk) confirms that the position is similar if a repayment is claimed via the property reporting service. There is no option to enter bank details on the UK property return and any credits will remain on the account until the agent/taxpayer contacts HMRC for repayment.
It appears that CGT repayments will only be made automatically via the property service where the initial payment was made by credit or debit card. In those cases, HMRC will send refunds back to the same card.
Estimates and amendments
Since property reports are made in-year, before all the facts relevant to the individual’s capital gains tax position are known, many property returns will need subsequent adjustment and agents need to know the correct approach.
My previous article outlined the rules around when it is permissible to update estimated figures or make other amendments to a property return and when these changes have to be reported through self-assessment. While HMRC’s new guidance picks up some of the issues, it doesn’t cover in detail what the relevant legislation actually permits taxpayers to do. The ATT have fed back our concerns and I understand more guidance is coming in this area.
Points to note
In the meantime, tax agents should note that:
- If the taxpayer uses estimated figures on their property return, HMRC will not issue a reminder after submission to suggest they might wish to update the report with final figures.
- Provided reasonable estimates were used – and flagged as estimated figures on the return – HMRC will not charge interest on underpayments which might arise when final figures are provided.
- It is not possible to update a property return once a self-assessment return containing that disposal has been submitted.
The ATT is often asked how tax agents should report property disposals for deceased persons – ie disposals made out of their estate. Since it is not possible to create a property account for a deceased person’s estate, the ATT advised that the only route for the agent to report is via a paper form.
However, since anyone with a property account has the option of reporting on behalf of another person, HMRC are now highlighting that it is possible for the executor to use their own, personal property account to report the disposal by the estate, and appoint an agent to do this via the usual digital handshake.
There are some caveats to this approach which are flagged in the HMRC guidance:
- The agent will be able to see any reports of disposals made personally by the executor.
- Appointment of the agent for the estate will displace any agent previously appointed for the executor’s personal affairs.
Digital reporting for an estate will therefore only be suitable where the agent also acts for the executor in a personal capacity. Where the executor is a professional such as a solicitor, then the paper form will probably remain the best approach.
Due to the large number of issues that have arisen since the launch of the UK Property Reporting Service in April 2020, many ATT members have asked how the service was tested prior to going live.
The system was piloted in 2019 and I and a number of other ATT volunteers took part in user testing. However, that testing didn’t cover the digital handshake – which has been the source of most complaints – as this was outside the control of the team developing the service.
We also weren’t able to test the system for receiving payments. Instead we mainly commented on the nature and content of the form itself – and not all our feedback has been reflected in the final design.
More testing of the process of interaction with self-assessment would clearly have been beneficial, although I suspect that testing the interaction of new services with existing, live services, is a challenge too far for HMRC’s developers. It was impossible for our volunteers to test that part of the system with taxpayers willing to report and pay within 30 days before the rules came into force.
While tax agents currently struggling with the system might feel otherwise, HMRC does take user research seriously. The department has a large team of user researchers who borrow heavily from approaches used in psychology/social science studies.
But volunteers can only respond to the scenario put in front of them. The ATT suggested it would be helpful if those in practice could comment on the range of scenarios being tested. We also think more focus needs to be placed on working with volunteers on how they think any new system might fit into their day to day practice processes or interactions with clients.
HMRC is continuing to work on updating all the guidance on the UK Property Reporting Service as well as exploring a longer-term resolution to the offsetting of overpayments issue.
For any issues which have not been addressed in HMRC’s new guidance, I’d encourage you to raise comments and concerns about the system on the Agent Forum and/or raise them with your professional body. Alternatively, please leave comments below and AccountingWEB will forward them to HMRC.
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Helen Thornley has a focus on personal and capital taxes. Initially training as an accountant before moving to tax, she worked in practice until her appointment as a technical officer in 2017. She also has an interest in the history of tax.