CGT: Pay on account within 30 days
Jacquelyn Kimber reviews the consultation document which sets out proposals for accelerating the payment of capital gains tax (CGT) due on disposals of residential property from 6 April 2020.
This CGT consultation (Payment window for residential property gains) follows an announcement made at the 2015 Autumn Statement that HMRC wanted to make paying CGT “simpler and quicker” for taxpayers, and address the fact that payment of CGT is “out of step” with the position of taxpayers within PAYE.
That statement is disingenuous (to put it mildly) and appears another attempt to portray individuals holding residential property as being “on the take” when they are doing no more than paying taxes in the manner set down in law.
The CGT payment on account rules were originally intended to apply from April 2019, but have been delayed until 6 April 2020, with draft legislation expected in summer 2018 and final provisions enacted in the 2018-2019 Finance Bill.
Summary of proposals
The consultation extends the non-resident capital gains tax (NRCGT) regime to UK resident individuals and trustees with a few modifications.
UK residents who dispose of residential property on or after 6 April 2020 will be required to deliver a return to HMRC and pay any CGT due within 30 days of completion. Where no tax is due (eg, where private residence relief applies, or for overseas property, any UK tax is fully offset by foreign tax paid) or there is a loss, no CGT return is required, although reporting may still need to be made on the individual’s self assessment return.
Non-UK domiciled individuals disposing of overseas residential property will also not be required to submit a return or pay tax provided they are taxable on the remittance basis for the tax year of the disposal.
In an effort for consistency across the CGT regimes, the existing definition of ‘residential property’ found in TCGA 1992 Sch B1 will apply, so all the current complications of what is “suitable for use as a dwelling” are similarly imported into the new regime and actual use of the property will be ignored.
The NRCGT rules themselves will be modified, so that the current payment deferral which applies where the non-resident is subject to an ATED charge or is otherwise within self assessment (eg, as a non-resident landlord) will disappear from 6 April 2020.
Unlike “resident CGT” returns, however, an NRCGT return will still be due even if no CGT is actually payable. Quite why HMRC choose to complicate compliance obligations in this way is baffling, especially when as it states the rationale for change as making CGT “simpler”.
Surely this would have been a good opportunity to backtrack one of the more ludicrous aspects of the NRCGT regime (which I explored in my previous article) and remove the requirement to deliver a return even when no tax is due?
Is it simplification?
Perhaps we should take HMRC’s efforts at simplification a little more seriously, given the proposed treatment of capital losses.
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Unused capital losses brought forward (from any source, excepting the special rules for connected party losses) and the annual exemption can be deducted in calculating the CGT payment on account due on a disposal of residential property.
If the taxpayer makes a subsequent disposal of another residential property in the same tax year and realises a loss, he can make a claim for repayment on the grounds that the later loss will be offset against the earlier gain. But losses arising on other assets in the tax year after the residential property disposal cannot be offset, other than in the self assessment tax return.
So it is possible for a large payment on account on a residential property gain to be retained by HMRC until the self assessment return has been filed, even if the taxpayer makes an even larger loss on a sale of shares the next day. This (and I’m not making this up!) is to “avoid undue complexities”.
Another blatant nonsense is the proposed rule on disposals which straddle the tax year, ie where contracts are exchanged pre 5 April (say 31 March) but completion is some time after.
Whilst the taxpayer’s self assessment return for the earlier tax year will need to include details of the disposal, as the CGT is reported based on the date of the exchange of contracts. The tax due on that SA return will be payable by the following 31 January, subject to offsetting amounts paid on account, but the payment on account itself will be due within 30 days of the completion date.
This on-account payment date could fall after the 31 January ‘normal’ payment deadline, in extreme cases, but there is no mention of any sensible rule preventing this in the consultation.
FA 2009 Sch 55 will apply, but hopefully the worst of the disproportionate penalties being levied under NRCGT will be avoided here, given that there will generally be no requirement to file a return when no CGT is actually due. Common sense at last? What do you think?
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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 ...