Tax Partner Newby Castleman LLP
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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

29th Jun 2020
Tax Partner Newby Castleman LLP
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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.  

Filing deadlines

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.  

Penalties

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. 

Losses

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.

Final liability

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.

Interest charges 

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

Replies (16)

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By ChrisKM
29th Jun 2020 09:48

I have a client that needs to set up their "CGT on UK Property Tax account" so that they can then authorise me as an agent.

To see what they would experience when attempting this (so that I could help them if needs be), I decided to try to set myself up (using my personal gov gateway account) and I keep getting "Sorry, we’re experiencing technical difficulties" error messages after I enter my login details.

Does anyone know if a completely new gov gateway account is needed for this service, or should existing personal accounts work? No one at HMRC can answer this.

Thanks

Thanks (2)
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By Homeworker
29th Jun 2020 09:50

Having declared CGT for overseas residents in the last couple of years, by using a relatively easy structured email, I am disturbed that it now appears to be necessary for taxpayers to set up a Personal Tax Account to authorise the agent to deal with this. We have many elderly clients who are not going to be able to do so without help, which of course we cannot easily do while in lockdown and that assumes that they actually have computer access. Have I misunderstood HMRC's online instructions and if not, how do we cope with this?

Thanks (3)
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By d70yv4
29th Jun 2020 09:53

Thank you. Do we know for sure how the CG34 (post-transaction valuation check) service fits into this system? The notes on the HMRC webpage for CG34 say, "For disposals of UK property that are not regarded as your main place of residence you must report and pay Capital Gains Tax within 30 days of disposal. Therefore remember to request a valuation to allow time to report and pay any Capital Gains Tax liability." But you need to give HMRC the request three months before the filing deadline and they'll only do this after the transaction and the the deadline for the return is 30 days...

Do you submit the 30 day CGT return and then amend if CG34 gives a different result, or will HMRC not engage once the 30 day filing deadline is passed (as is their normal process with other gains)?

Thanks (2)
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By Justin Bryant
29th Jun 2020 10:48

Bizarrely, if you are desperate to file this for a tricky client (e.g. overseas Japanese speaking) then it seems the only way is to log into your own personal, private Gateway account and select the option to file on behalf of someone else (HMRC will only issue a paper return for probate cases). Crazy but true.

Thanks (1)
Replying to Justin Bryant:
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By Homeworker
30th Jun 2020 11:37

Justin Bryant wrote:

Bizarrely, if you are desperate to file this for a tricky client (e.g. overseas Japanese speaking) then it seems the only way is to log into your own personal, private Gateway account and select the option to file on behalf of someone else (HMRC will only issue a paper return for probate cases). Crazy but true.


I would certainly never have thought to try this, although I do have a personal tax account, which I also never use, since it cannot even tell me what pension I will be entitled to. Nevertheless, thanks for the heads up. I know I will have a couple of returns to file soon.
Thanks (0)
Tornado
By Tornado
29th Jun 2020 14:56

Oh yes, another great idea from HMRC that is not going to work.

My client made a gift of residential property in early June and I advised him that tax will be payable. I originally thought that Solicitors would be dealing with the declaration as it goes hand in hand with this type of transaction but I can now see why they are not interested.

Whether an Agent is involved or not, the responsibility for making the declaration seems to be solely that of the individual and the first hoop to jump through is that he/she has to have a Gateway ID and Password. As my client has neither he had to set up a Personal Tax Account. I cannot, of course do this for him but I did sit as the other end of the phone telling him where to go and what to enter. This took
nearly an hour to do as English is not his first language and he was asked endless questions in the online form, but eventually we got there.

The next stage is for him to set up a Capital Gains Reporting Account so that this particular gain can be reported. This can only be set up if the client has the required Gateway ID and password and only when this Account has been set up and given a number that the Agent can get involved. It seems that the client tells the Agent the Account Number and by a series of links the Agent can become authorised to continue filling in the details of the capital gain and calculating the tax due.

It should be noted that the Agent must have an Agent Services Account set up. This is not the online account that most of us have anyway, this is the new Account that we had to set up in order to assist clients with MTD for VAT.

The inevitable has happened. We called it a day after setting up the PTA and I sent him details of where to go to start setting up the Capital Gains Reporting Account, but despite reminders from me, he has not done this yet. He still has time to make the report on time, but I think he is fed up with the whole thing and has lost interest.

Whilst I have all the necessary information to make the submission for him, HMRC have made all of this so difficult that I cannot do this. All I hope is that I can impress on him the importance of setting up the Reporting Account but despite having made arrangements for the tax due, and an acceptance that this is way it works, there are just too many unnecessary obstacles to negotiate and I think he is past caring about any penalties or interest. On top of the current pandemic problems, I can sympathise with him.

I had not realised that those who are not within the Self-Assessment system have to report in a similar manner as well. I don't quite understand why it is necessary to set up a reporting account when there is never likely to be any other similar transactions, but that seems to be the way it is.

No wonder solicitors have stood well back from this. The cost to people of an hour or more in time to assist setting up these accounts would be astronomical. I can almost hear Solicitors breathing a sigh of relief and thinking - we will leave this one to the Accountants.

Thanks (5)
Replying to Tornado:
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By Justin Bryant
29th Jun 2020 15:28

Yes; it's a complete joke and you can waste hours & hours on this. The only workaround solution for such tricky clients is that stated by me above (in fact, HMRC told me that's the solution!)

Thanks (1)
Replying to Justin Bryant:
Tornado
By Tornado
29th Jun 2020 15:52

[quote=Justin Bryant]

Yes; it's a complete joke and you can waste hours & hours on this. The only workaround solution for such tricky clients is that stated by me above (in fact, HMRC told me that's the solution!)

[/quote

As you say, a rather ridiculous situation to be advised to log into your own PTA and request to file for someone else. I will definitely not be doing that.

In fact I have not logged into my own PTA for over two years anyway. When I first set it it up I could see some Pension information and various other non essential information but I could see nothing associated with my tax. A personal Tax Account that has no tax information seemed a waste of time so although I checked a couple of years ago to see if things had improved, I have not looked at it again.

I can get all the personal Tax information I require through my Agent Account (I am an Agent for myself ....... another bizarre arrangement).

It is not the principle of reporting this type of capital gain in 30 days that is the problem, it is the difficulties in actually doing it that is the problem.

Thanks (1)
Replying to Tornado:
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By Software Seeker
29th Jun 2020 17:06

Agreeing with Tornado and JB on this.

I had my first CGT report to file this morning. The client had a GG account so we didn't have to mess around with that. Our aim this morning was to create a CGT on UK Property account number, so I could then go away and make the report.

Must be a simple process, I thought.

First problem was that there was no obvious option to create a CGT account from within her GG. We finally found this by clicking a separate link from a START button from within this link - https://www.tax.service.gov.uk/capital-gains-tax-uk-property/start/repor.... Which then, curiously but thankfully, took us into the right page for her to create a CGT account. (We were on Zoom so I was blindly guiding her through the process). She then managed to create the account number and provided it to me. Step 1 of the process done.

"All" I needed to do now was log into my Agent Services Account (note NOT the usual Government Gateway account which I usually use). So I did, and then was presented with a screen entitled "What is your client’s Capital Gains Tax on UK property account number?" Woohoo, exactly was I was hoping to find! Then I input the account number, and was presented with the dreaded error message:

"There’s a problem
Enter a Capital Gains Tax on UK property account number that is 15 characters"

So, I tried again - maybe I'd inputted the number incorrectly - and the same message.

I'm wondering if I really want to spend 60+ minutes holding on the telephone to HMRC to query the problem, only to be told a) We don't know or b) login to my own PTA and file for this person.

Time to give up for today, I think. I'm going to go away and try again tomorrow

ZZzzzzzzz....

Thanks (1)
Replying to Software Seeker:
By Rebecca Cave
01st Jul 2020 14:22

Sofware seeker - Did you get this problem sorted? Was is just due to there needing to be a delay between setting up the account and authorising you as the agent?
I'm interested to report on further problems agents are experiencing with this CGT reporting.

Thanks (0)
Replying to Rebecca Cave:
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By Software Seeker
01st Jul 2020 15:43

Rebecca Cave wrote:

Sofware seeker - Did you get this problem sorted? Was is just due to there needing to be a delay between setting up the account and authorising you as the agent?
I'm interested to report on further problems agents are experiencing with this CGT reporting.

Nowhere yet. When I created my ASA last week, it (I assumed) copied across all my authorised clients from my usual GG account (indeed, when I go into my ASA it shows the number of SA clients copied across). Are you saying I need to ask again for separate authorisation from my client, despite it appearing to have already been copied across (although I can't be 100% certain that this client in particular was copied across because, unhelpfully, the ASA doesn't have a list of clients)?

I'm not usually into 'HMRC-bashing' but this is all very silly.

Thanks (0)
Replying to Software Seeker:
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By Software Seeker
06th Jul 2020 11:19

UPDATE:
Success! I managed to get this submitted today. The whole process (which excluded the client creating a GG account - because she already had one) took me almost 5 hours. All chargeable time I suppose. But boy oh boy it was unnecessarily convoluted.

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By ireallyshouldknowthisbut
29th Jun 2020 18:27

Thanks for the heads up on this from the above posters.

This looks even more badly implemented than the trust registration service.

I was not able to set up a personal tax account when I tried a couple of years back and gave up I will have to have another go and to do this cowboy route to filing.

Thanks (0)
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By Ian McTernan CTA
30th Jun 2020 11:49

What an utter mess this system is, and all completely unnecessary. HMRC have, as usual, taken a simple idea (speeding up the payment of CGT) and made it so complex most people will just give up and not bother.

The simple way would have been to just report it on a separate form online, submitted by the client or the agent through the existing system which would then automatically attach to their existing SA account (or create one for them if not already registered). And then pay the tax due to HMRC. But no, instead we have a crazy system with so many hoops that unless you start on day one of the disposal there is little chance you will get the gain filed on time.

As most won't even be aware that they need to report it, I expect I might be told a couple days before the 30 days have expired..and given my recent experience of trying to get authorisation codes issued for PAYE (some are now on their 5th attempts and still no sign of them months have gone by and HMRC have no explanation), the chances of getting that code before the filing deadline is pretty close to zero.

Maybe the advice will be to pay the tax into their SA account as soon as we have calculated it (after digging out all the necessary information, etc which again, is not instant) and then do the actual filing when the system finally grinds around a few months later....

And WHY the hell do we need to apply for yet another authorisation to act..maybe HMRC could get into the 20th century (21st is too much to ask) and have a blanket authorisation for one client covering all taxes unless otherwise specified...

Thanks (0)
Replying to Ian McTernan CTA:
Tornado
By Tornado
30th Jun 2020 12:11

Like my clients, I am nearly past caring about dealing with complex procedures to do simple things, and my view is that no matter what the rules say, this is very much an HMRC problem and not mine if I don't want it to be.

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Tornado
By Tornado
10th Jul 2020 12:33

My client eventually responded and I was able to help him over the phone to set up his Capital Gains Tax Account. It was reasonably straightforward with no particular problems. He was given a Reference number and there was no necessity to input any data about the transaction yet.

I subsequently went into my Agent Services Account to the authorisation request section and filled out the information requested, which included the Capital Gains Tax Reporting Number that had been allocated to my client. I did have to start the process again as I entered his postcode with a space and the system is not intelligent enough to deal with this, so postcodes needs to be entered without a space in the middle.

My instructions were to provide my client with a link given to me and ask him to go to the link, log in with his Gateway ID and password and look for the place to confirm his authorisation. I am now waiting for him to do this. I should then receive an email advising me that I am authorised and I should be able to start completing the declaration.

He is going to be late, but I don't think he is particularly bothered about this. Like most people at this time, he has huge problems with his business activities and this additional burden does not rise very high on his priority list.

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