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New way to obtain a capital gains tax refund

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HMRC has introduced a mechanism to allow initial overpayments of capital gains tax (CGT) to be set-off against income tax and NIC liabilities due by 31 January 2023.

27th Jan 2023
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There are two ways in which a taxpayer could end up with an initial overpayment of CGT for a tax year:

  • Where they have used the UK property reporting service and paid CGT ‘on account’ in respect of a gain arising the disposal of UK residential property;
  • Where they have used the real time capital gains service to report capital gains from the disposal of assets other than UK properties, and have paid the CGT due with that return.   

Interaction issues  

The UK property service was apparently designed with little thought to how it would interact with the self assessment process, but the UK taxpayer is obliged to report a gain from residential property twice: first on the UK Property Account and later on their self assessment tax return. Non-resident taxpayers have different reporting obligations.

The real time CGT system is intended to be used by taxpayers who are not within self assessment, and thus avoids the need for the individual to register for self assessment just to report a one-off gain. However, the real-time CGT return has no basis in law as I pointed out in 2018.     

The tax due following submission of a UK property account needs to be reflected on the SA return, and this is where the problems begin.

2020/21 SA returns

Taxpayers and advisers found that the tax paid on account following a property disposal was not automatically set against the other tax due as reported on the 2020/21 SA tax return.

In October 2021 Helen Thornley explained how taxpayers could reclaim CGT paid on account.

The only solution for that tax year was to ring HMRC and ask for a manual set-off of the tax paid that exceeded the final CGT bill. Where the CGT overpayment exceeds the balance of the SA tax liability, the taxpayer can request a refund.

This process has now been set out in para 3.2.3 of appendix 18 to HMRC capital gains manual.  

2021/22 SA returns

The process of obtaining a CGT refund has been eased slightly for the 2021/22 SA tax returns.

Any initial overpayment of CGT for 2021/22 will be automatically set-off against any other tax due as calculated on the SA return for that tax year, see para 3.2.4 of appendix 18 of HMRC capital gains manual.

If the overpayment of CGT is greater than the other SA tax due by 31 January 2023, the excess will not be automatically repaid. The taxpayer or their agent needs to contact HMRC on 0300 200 3300 to enable the overpaid tax to be repaid. 

Paper returns

There are at least ten situations where a taxpayer cannot or should not submit the UK property return online, for example when the SA return has already been submitted reporting the property gains that arose in the year.

 

Where the online UK property service can’t be used the taxpayer needs to file a UK property paper return instead. This paper return can only be obtained by the taxpayer or their agent ringing HMRC on 0300 200 3300 (open 8am to 6pm weekdays).

Agent update issue 103 reports that the paper return has been improved to provide the taxpayer with more guidance. It now includes sections to report details of the authorised tax agent and to enter repayment details where the return is an amended return.  

No payment reference

Where a paper UK property return has been submitted HMRC should supply the taxpayer with a payment reference, but it can take some weeks or months for this payment reference to be issued.  

If the CGT due on a property disposal in 2021/22 has not been paid on account, HMRC advises the following:

“The self assessment return should be completed to reflect the CGT that will be charged via the CGT on UK Property Account, and a note made in box 54 of the SA108 to advise that the charge reference has not yet been allocated.”   

Non-residents

Taxpayers who are not resident in the UK need to report gains and losses from the disposal of all UK real property (residential and commercial), held directly or indirectly, using the UK property account service. However, non-resident taxpayers may not be within the self assessment system. 

2022/23 SA returns

Is it too much to hope that the UK Property Account service could be fully integrated with the self-assessment system in time for completion of the 2023/23 SA returns? I’m not holding my breath.

Replies (13)

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By Hugo Fair
27th Jan 2023 12:48

Every time HMRC introduce a new filing requirement, they choose a method that takes no account of interaction with other filings ... with the result that:
- initially the volume of queries to HMRC escalates geometrically;
- subsequently they tinker with their processes (aka raid the cupboard for sticking-plasters).

Any fool, apart apparently from the Harra Show (maybe he should be restricted to Halloween), can see that the impact on overall efficiency is profoundly negative. And yet, here we go again ...

Nice conclusion, Rebecca: "Is it too much to hope that the UK Property Account service could be fully integrated with the self-assessment system in time for completion of the 2023/23 SA returns?"
... but HMRC have to learn to recognise causes not just symptoms, and to focus on tackling the former rather than papering-over the latter.

Thanks (14)
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By Ian McTernan CTA
27th Jan 2023 13:28

So we have the head of HMRC on the one hand telling us not to phone them, and then we get this:

The taxpayer or their agent needs to contact HMRC on 0300 200 3300 to enable the overpaid tax to be repaid.

So the system is about as joined up as Australia and the UK (and takes about as long to get through!).

And our Institutes should be harassing HMRC about this, not having cosy chats and meetings. Then publish the minutes to show which side the Institutes are on.

Clearly cosy hasn't worked, time to stand up for the members that fund you.

Thanks (17)
Scooby
By gainsborough
27th Jan 2023 14:59

"The UK property service was apparently designed with little thought to how it would interact with the self assessment process" - it appears everything is designed with little thought and amendments to legislation have to then be hurried through.

I'm sure filing a self-assessment return with a "one-off" box to tick so a return does not get automatically re-issued (in the same way as ceasing self-employment box works) would have been far better than faffing around with Government Gateways and extra agent authorisations for those who don't usually have a filing requirement.

This was all about speeding up the CGT payment and raking in penalties. Why pretend otherwise?

Thanks (2)
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By Moo
27th Jan 2023 15:18

What happens when a 60 day CGT return has not been submitted and tax on account has not been paid due to ignorance of taxpayer and no warning from conveyancing solicitor? Gain then reported as normal on SA return and tax paid 31 January.
Are HMRC actually picking up on these failures, insisting on the late CGT return, charging late filing penalties, late payment penalties etc?
Or are they too overstretched to follow through and demand penalties if the correct tax is eventually paid?
Had a case in 2020/21 tax year but have not heard further from the client whether they received any punishment.
Have another case in 2021/22 tax year where no CGT return filed, SA return not yet filed, client seems to be in denial.
Fortunately where clients have been receiving rental income on properties we have mostly managed to pick up on the disposals and make sure the CGT returns were filed in timely manner. The ones which have slipped through the net are ones where there was no rental income so we had no knowledge that a second property existed.

Thanks (3)
Replying to Moo:
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By Tomazaan
30th Jan 2023 10:08

I don't know if HMRC is picking up on people not filing a CGT return at present but it will. HMRC has been very clear that a CGT return MUST be filed even if the gain has been reported on the SA return and the tax paid. There are penalties for late submission of CGT returns and the client will have to pay them.

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Replying to Moo:
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By norstar
30th Jan 2023 10:08

Same with ATED - those involved with the conveyancing should at least be telling taxpayers to get advice as there could be time sensitive filings due.

I've got a similar problem with a guy in denial. The CGT has gone through his tax return but does that stop the clock for daily pens? Or presumably we're in the absurd situation where despite now having full disclosed a gain in SA, he still needs to make a "real time" return for the same numbers?!

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By ralan
30th Jan 2023 10:10

I have a client who filed his own CGT Return and paid within the 60 days.
Filed his SA 21/22 Return in December and gave it a week before ringing for set off only for client to receive full repayment in 7 days from submitting SA Return.
Did the Gremlins at HMRC do the set off on their own behest or is their computer system "learning" to do things on its own??

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Michael Bennett, Owner of Michael B Bennett Ltd
By Michael Bennett
30th Jan 2023 10:21

Silly question time. If the Real Time CGT online return has no basis in law, then surely any financial penalties for not doing so, also have no basis in law. It then logically follows that those taxpayers that have not filed a CGT real time online return, but have included the relevant information in the normal SA return, cannot be penalized if they then do not file the PPDCGT paper CGT return.

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Replying to Michael B Bennett:
Head of woman
By Rebecca Cave
30th Jan 2023 15:48

There are TWO alternative ways to report CGT other than on the SA tax return which are not the same thing:
1. Realtime CGT return - not a legal requirement, and should only be used for gains which are not reported on the UK Property account.
2. UK Property Account service - legal requirement for reporting residential propety gains ( all rpropety gains & losses for non-residnet taxpayers)
Do not confuse the two.
There are no penalties for not doing a realtime CGT return but there are penalties for not completing the UK property account within 60 days of the property disposal (completion date).

Thanks (6)
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By OrmeGoat
30th Jan 2023 13:54

When I read the heading I thought this was about Nadhim Zahawi.

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By DMBAcc
30th Jan 2023 14:19

And they want to introduce MTD f IT - you've gotta laugh otherwise you'd cry !!!!!!

Thanks (3)
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By Inquisitive
30th Jan 2023 17:05

One would have thought that anyone, with a basic understanding of the interlinkage of income tax and CGT, would realise that separate data reporting and calculating of tax processes need to have all the data to work. Is this why the PM wants pupils to take maths until 18?
As someone who had to report a gain in February of the tax year this started when I did not know what my total income would be for the tax year and it was close to, but not over the 40% rate this stupidity was all too obvious. And I am not a tax expert!

"Is it too much to hope that the UK Property Account service could be fully integrated with the self-assessment system in time for completion of the 2023/23 SA returns? " Not a chance. It is extremely difficult to integrate separate operating systems. And those that write these computer programs do not seem to understand tax rules.

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By richard thomas
30th Jan 2023 17:42

Thank you for this article, and for that linked to on "Real Time" CGT reporting (what's real time about it if you've got until 31/12 in the following tax year?) which has no basis in law and is just a prepayment of CGT.

But on the subject of no basis in law, para 1.13 of the residential property guidance is not based on any legal provision if it is regarded as prohibiting any person not included from filing a paper return. To be fair to HMRC it does say "should be made" which suggests that in all the instances online filing is not possible or could cause problems. It does not in terms say no one else can file on paper.

Agent Update 103 is rather different:

"Paper returns should *only* be made in certain circumstances. You can read a full list of when paper returns can be made in section 1.13 — Paper returns of the CG-APP18 CGT on UK property account guidance."

There is no basis in law for that statement. If electronic communication is to be mandatory it has to be set out in regulations as being such - as for CT and VAT filing - and subject to exceptions. The regs should set out all sorts of safeguards and presumptions of receipt and despatch - see those for IT returns for example. There is nothing of the sort for 60-day returns and their legality must be subject to doubt were someone to challenge it.

On the list of 10 what on earth does this mean?

"A Capacitor (such as Power of Attorney) who wants to authorise an agent to file, the UK property return"

Is a "capacitor" a person as well as "a device that stores electrical energy in an electric field by virtue of accumulating electric charges on two close surfaces" (per Wikipedia)? As an example given of a capacitor is a "Power of Attorney" it cannot be a person, as the person is the attorney who has been granted the power. It seems to be an invented word, coined by HMRC.

And "A secure or Public Department 1 customer who doesn’t file returns online with HMRC" seems to cut out any insecure customer who isn't a PD1 taxpayer. And how on earth does anyone know if they are a PD1 "customer"? I have always made a return to PD1 but all I get now are notices and correspondence from HMRC PAYE and Self-Assessment.

Finally while I'm having a rant at HMRC's illiteracy, "A person that"? Should be a person "who" - "that" is for inanimate objects.

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