CGT: Pay and file in 30 days or face penalty
The new 30-day filing and payment deadline for CGT on homes has been overlooked in the coronavirus crisis, but now the property market is opening up, penalties could quickly follow
Where a residential property is sold and both the exchange and completion dates fall on or after 6 April 2020, the vendor (or agent) must file an online return of any taxable gain arising and pay the CGT tax due, both within 30 days of the completion date.
Before 6 April 2020, only non-UK residents were within scope of this pay and file regime for CGT. In this article, I consider only UK resident taxpayers who dispose of UK residential property.
Before 6 April 2020
For 2019/20 and all earlier tax years, individuals are required to include gains arising from all assets, including residential property, on their tax return for the year in which the disposal takes place. The date of disposal is generally set by the date contracts are exchanged.
The CGT due is payable by 31 January following the end of the tax year. A real-time online reporting system for CGT was launched in 2018, but it is optional and completely separate to the new online CGT property account which will have to be used for current year disposals.
From 6 April 2020
UK resident individuals, trustees and personal representatives who dispose of residential property in the UK need to file a CGT on UK property return and pay any notional CGT due on the disposal within 30 days of the date of completion.
Where the gain is fully covered by a CGT relief, brought forward losses or the annual exemption, there is no requirement to file a CGT on UK property return or pay CGT on account.
If CGT is due, the taxpayer must complete a return and pay the tax within 30 days of the completion of the disposal. Unlike the real-time CGT return, tax agents can file the CGT on UK property return on behalf of clients. However, there is a separate agent authorisation process which requires the client must be sufficiently IT literate to set up a government gateway, sign in and create a CGT on UK property account.
Where the return is not filed within 30 days of the completion date an automatic late filing penalty of £100 will apply. If the return is more than three months late, daily penalties can apply and then fixed £300 penalties at 6 months and 9 months, in the same fashion as apply for late self-assessment returns.
However, to allow taxpayers and agents to get used to the new system, HMRC will not issue penalties for late returns submitted up to and including 31 July 2020. This means transactions completed from 6 April to 30 June 2020 inclusive need to be reported by 31 July 2020.
Where a property sale completes on or after 1 July 2020, the CGT on UK property rerun must be filed within 30 days and the CGT paid within 30 days. If your client can’t meet that deadline, they need to get their reasonable excuses ready.
Estimating the CGT
The taxpayer must make a reasonable estimate of the CGT payable on the disposal as if the tax year ended on the date of disposal. This means the taxpayer needs to estimate their taxable income for the year, to work out if the gain falls wholly or partly in the basic rate band when the CGT is due at 18%; otherwise, the CGT is due at 28%. The taxpayer also needs to take into account any disposals of UK residential property which have already taken place.
Gains on any other assets are ignored in calculating the notional CGT due. Where an estimate changes, a further return may be filed correcting the estimate and, if appropriate, a repayment of tax claimed.
There are many practical issues associated with this need to make estimates:
- What if the taxpayer’s circumstances change unexpectedly?
- How will HMRC approach estimates which turn out to be deficient but were made in good faith?
In making an estimate of the notional CGT due, claims and elections are taken into account where it is reasonable to these will be made or given but this does not remove the requirement to formally make the claim or election in a tax return etc.
Disposals of UK residential property giving rise to a capital loss do not need to be reported to HMRC within 30 days of completion and should be entered on the individual’s tax return in the usual way.
However, if the disposal giving rise to a loss would have triggered the obligation to file a CGT on UK property if a gain had arisen, the taxpayer may make a return and make a repayment claim in respect of any notional CGT already paid in respect of an earlier disposal of UK residential property.
Realised capital losses, both brought forward and in-year, may be taken into account when computing the notional CGT due. The asset giving rise to the loss can be anything, not just UK residential property.
A loss arising later in the same tax year on any other asset (ie, not residential property) can only be taken into account in the individual’s tax return for the year, unless there is another UK residential property disposal after the loss-making disposal in the tax year. The timing of disposals is therefore crucial in obtaining in-year relief for losses.
The taxpayer’s self-assessment tax return for 2020/21 and later years must include all disposals taking place during the tax year, in the usual way. CGT on the disposal of assets other than UK residential property continues to be due for payment on 31 January following the tax year-end.
Any overpayment of notional CGT will be offset against additional tax liabilities or repaid if no other liabilities arise.
Underpayments and late payments of notional CGT will attract interest charges. Interest will be charged on CGT which is not paid within the 30 deadline. This interest has not been waived for transactions which are reported late by 31 July 2020.
Taxpayers and tax agents should take a prudent approach to estimate their liabilities.
Other property disposals
In future articles I will look at the particular rules for gains arising from disposal of residential and non-residential land and buildings by these taxpayers:
- UK resident companies
- non-resident resident individuals
- non-resident companies
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Jacquelyn Kimber is a tax partner at Newby Castleman LLP in Leicester, where she advises on a range of tax issues affecting individuals and businesses, including offshore matters and trusts. She can be contacted on 0116 254 9262 or by ...