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Pay CGT on property in 30 days

From 6 April 2020, Capital Gains Tax due on the disposal of residential properties will be payable within 30 days of the completion date. This is another step in the acceleration of tax payment dates for CGT due on gains arising from UK property.

20th Sep 2019
Tax Writer Taxwriter Ltd
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The old saying goes, ‘a bird in the hand is worth two in the bush’, and so it is with tax. The quicker the government can collect the tax due on a transaction, the more valuable that income is, especially as the government keeps its own accounts on a cash basis.

The delay between making a capital gain and paying the CGT due can be as much as 22 months. For example, the CGT arising from a gain made by a UK resident individual on 6 April 2019 will be payable by 31 January 2021.   

NRCGT

In 2015, certain non-resident landlords were the first to be hit with an acceleration of tax payment period under the non-resident capital gains tax (NRCGT) rules. This tax was payable on gains arising from UK residential property, but only in respect of gains accruing from 6 April 2015 to 5 April 2019. Larger corporate landlords who paid the annual tax on enveloped dwellings (ATED) on their residential properties were liable to pay the ATED-related gains charge instead of NRCGT.

The transaction subject to NRCGT had to be reported within 30 days of the completion date, whether or not there was tax to pay. This short reporting period generated a lot of late filing penalties for taxpayers who weren’t advised of the change in the law, or in some cases were incorrectly advised by HMRC (Kirsopp TC07064).

The NRCGT was also payable within 30 days, but taxpayers who were already registered with HMRC for self assessment could defer that tax so it was payable with their normal SA tax.  

New NRCGT

Finance Act 2019 transformed NRCGT so it now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property). This includes gains arising from indirect disposals of property such as where shares in a property-rich company are sold. Gains accruing from periods before April 2019 (or April 2015) stay out of the UK tax net if the landlord remains non-resident.

The NRCGT is also potentially payable by all non-resident landlords, as the ATED-related gains charge is abolished from 6 April 2019.

The NRCGT is charged at the normal rates of CGT for the taxpayer concerned, so corporates pay at 19% (corporation tax rate) and individuals, trustees and personal representatives pay at 18% or 28%. The tax is due within 30 days of the completion date for all transactions (with no deferrals), although as most properties have a base value at 5 April 2019, few gains will actually be subject to NRCGT in 2019/20.

UK landlords

In 2018, the government proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019 to coincide with the new NRCGT rules, but it was delayed until 6 April 2020.

The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. I suspect this return may look much like the existing real-time CGT report, except it will be possible for HMRC to enquire into the property disposal return independently of the taxpayer’s SA return.

If there is no gain to report or the gain is covered by exemptions or losses, the taxpayer won’t have to complete a property disposal return. It seems a lesson has been learned from the hundreds of late-filed NRCGT returns which reported little or no gain.  

If there is a taxable gain to report, the taxpayer must calculate the CGT due taking into account their annual exemption for the year and guess at the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).

After the end of the tax year, the taxpayer will complete their self assessment tax return, including the property gain. Once their full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and any “on account” payment will be deducted. This could result in a repayment of CGT for the taxpayer. 

Action

You will need to advise your clients to tell you about their residential property sales as soon as they are agreed, so you can help them calculate the tax due and submit the property disposal return to HMRC within 30 days of the completion date.

Replies (29)

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By ireallyshouldknowthisbut
20th Sep 2019 17:13

we have loads of let property client,s and this is going to be a nightmare to implement.

Not least as for sales in (say) April 2020, we won't even have done their 19/20 return, let alone have a good handle on their 20/21 income in order to work out the relevant tax due.

Its going to be real fingers in the air stuff, at least with NRGT the let property income is invariable their only source so you have a bit more of an idea.

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By JimLittle
20th Sep 2019 22:44

Most will forget and end with huge penalties.

We will only find out a client has sold their property when we come to do their tax return months later and the client would have ended up with penalties. We know with NRCGT penalties are difficult to appeal against

Only one winner.

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Replying to JimLittle:
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By SXGuy
21st Sep 2019 08:09

JimLittle wrote:

Most will forget and end with huge penalties.

We will only find out a client has sold their property when we come to do their tax return months later and the client would have ended up with penalties. We know with NRCGT penalties are difficult to appeal against

Only one winner.

Exactly this. And I think HMRC know it also.

I've had a few clients in the past that come to me in April and say oh I sold one of the let's. OK when? Ah about 3 months ago.

So in this situation client would be facing a penalty. Lovely.

I guess a mailshot is in order to inform all landlord clients of the change.

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By Red Leader
22nd Sep 2019 09:52

Do you think that this is something that will get alerted by the conveyancer? They do seem to have incredibly long checklists.

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By seitler
22nd Sep 2019 14:01

Does this mean that the CGT on 20/21 residential disposals will be paid before those arising in 18/19 ?

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Replying to seitler:
By Rebecca Cave
22nd Sep 2019 15:19

The CGT due for 2018/19 is due by 31 Janaury 2020, so no.
Where sales or residential properites are agreed (exchange date) and completed between 6 April 2020 and 31 December 2020 the CGT will be due within 30 days, ie before 31 Janaury 2021
The CGT due for 2019/20 is due by 31 January 2021, so it is true to say that CGT due on residential property for 2020/21 will, in the most part, be payable before the CGT due for 2019/20.

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By justsotax
23rd Sep 2019 09:14

of course it is also convenient for the Revenue to specify that a Return isn't required where there is no gain....they don't want to be overrun by returns....but people will still need to check that a return isn't required....

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By ABD
23rd Sep 2019 09:57

Hi Rebecca, you say that where it is covered by exemptions or losses it won't be reportable and payable in 30 days, have HMRC indicated how this would work in practice because it may not be possible to know if a tax payers's disposal is exempt or covered by annual exemption e.g. they sold a mixed use property or they sold other assets earlier in the year.

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By NH
23rd Sep 2019 09:58

One would have thought that this will be something to be added to the list of things to be completed by the conveyancer, although I did have a client recently whose solicitor asked us to do the SDLT return as they didn't know how to do it!

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By James_Lambert
23rd Sep 2019 09:59

Thanks for the article. Could you please confirm whether this has actually been legislated yet? I thought this was still in the Draft Finance Bill and hadn't been granted Royal Assent yet?

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Replying to James_Lambert:
By Rebecca Cave
23rd Sep 2019 11:33

The legislation was in FA 2019, sch 2 paras 1-2: http://www.legislation.gov.uk/ukpga/2019/1/schedule/2/enacted

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By Vallery Lee
23rd Sep 2019 10:14

I am just about to email all my clients with "lets" updating them with this information. Hopefully they will inform me in time if they make a sale.
I forsee things going wrong - oh well, extra chargeable time

Thanks Rebecca Cave for the report

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By petestar1969
23rd Sep 2019 10:18

Ok so when "guessing" what CGT rate to apply should we all "guess" at it being 28% so there is no possibility of underpaying? Will there be interest on any refund?

If we "guess" at 18% and it turns out to be higher will there be an interest charge?

It seems very unfair, as well as an admin nightmare.

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Replying to petestar1969:
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By Joe Alderson
23rd Sep 2019 11:49

This is my issue, we have a lot of PSC Directors and we don't always know what their income for the year will be until the end of the year. HMRC should release some guidance on this, but they won't.

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By Martin B
23rd Sep 2019 10:45

Pay CGT on property in 30 days. For future reference

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By Ian McTernan CTA
23rd Sep 2019 10:55

I think the solicitor should have a duty to check whether any CGT is due before they release the funds- this will at least ensure that clients know a return is due.

The Irish have had a similar system for years- and the solicitor has to account for the CGT before releasing funds to the client, which makes for a smoother system.

Relying on clients to self report is a recipe for endless fines, penalties and appeals. There is no need for the new system to be so badly designed other than HMRC's insistence that they will do it their way instead of adopting other countries ways of doing things.

Now if only they could follow Ireland's example and scrap Section 24....

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Replying to Ian McTernan CTA:
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By Dandan
23rd Sep 2019 13:46

Ian McTernan CTA wrote:

I think the solicitor should have a duty to check whether any CGT is due before they release the funds- this will at least ensure that clients know a return is due.

That would be a nightmare scenario. Property owners expect funds to be transferred on completion date; not 3 or 4 weeks later because solicitor is not an accountant and does not have tax info to hand or will not accept the assurances of the client.

If the rules are there (i.e. due 30 days) and penalty system in place , what is it not enough ? Why should tax be deducted at source ? Are we irresponsible children ?

Both my wife and I own BTLs and we have been through many disposals and paid all our CGT(often cripling) on due dates whilst welcoming the time given to pay. Now it is all changing and HMRC what their money 30 days later. At least we can hold that money for 30 days and make it work. I doubt that the government would consider what you propose unless it is a new government that hates the idea of a second homes and BTLs and wants a punitive system in place.

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Replying to Dandan:
By ireallyshouldknowthisbut
24th Sep 2019 15:01

Id agree with Ian.

If they want to make the process work to collect lost taxes, you need some sort of withholding tax when the money is moving that the seller cant avoid. Eg a default of (say) 20% of the property price, and allow the tax payer to claw it back by either working out the actual tax before the point of completion (there is normally 6-8 weeks at least between striking the deale and completion, so there is time if solicitors are involved up front, and warn the sellers to get some tax advice), or a system of an immediate charge, with a rapid claw back within 7 days or so as a rebate type system.

Otherwise all we are doing is bringing forward the timing for legitimate tax payers who would have paid it anyhow, and adding a whole bunch of time, effort and admin all round. Those that were going to dodge it anyway,will carry on doing so.

Of course none of the above solves the issue above about it being impossible to work out how much tax is due, when CGT is a tax on total income, but would at least have some upside for the treasury.

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Replying to Ian McTernan CTA:
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By david.bransbury
23rd Sep 2019 14:39

This was the original plan but the Law Society persuaded the HMRC that solicitors know nothing about tax .... and that is the role of accountants

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By KIKISROSSIDES
23rd Sep 2019 11:47

Why would anyone selling a propety rely on the accountant to do the return and not the solicitor doing the conveyancing? Surely they also have a responsibility to advise their clients of what the law requires following a sale, yes?

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By Justin Bryant
23rd Sep 2019 12:00

Isn't this the least of their concerns? Comrade Corbyn and his Marxist cronies want to more or less nationalise the BTL market. I'd be a lot more worried about that if I had loads of BTLs

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Replying to Justin Bryant:
By SteLacca
23rd Sep 2019 13:31

Thanks for the Party Political broadcast, Justin, though I'm not so sure it's warranted.

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Replying to Justin Bryant:
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By Dandan
03rd Oct 2019 13:50

Justin Bryant wrote:

Isn't this the least of their concerns? Comrade Corbyn and his Marxist cronies want to more or less nationalise the BTL market. I'd be a lot more worried about that if I had loads of BTLs

That is true. It would backfire though, should it happen. Landlords will just put money elsewhere; creating shortage in available private properties for councils to let. Expect more tents around cities .

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By CJaneH
23rd Sep 2019 12:51

This is going to depend on

1 Solicitors understanding/ remembering tax is due and telling their client.
2 Hopefully solicitors will obtain name of accountant and inform them directly. Ideally warning at beginning of sales process and copy of completion statement on completion.

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By leon0001
23rd Sep 2019 13:58

What if the client has a portfolio of investments and is buying and selling shares? If the sale completes before the previous year's tax return has been completed, there may be available losses brought forward which are not yet quantified. Can any tax overpayment calculated be reclaimed between payment of the 30 day tax and submission of the "normal" tax return?

It could also take much more than 30 days to obtain and compile cost and improvement expenditure, or indeed a March 1982 valuation.

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By gordo
23rd Sep 2019 22:29

Often when a businesses is in distress they will try to accelerate income. UK debt leads to the Government acting in the same way.

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By Tosie
24th Sep 2019 10:24

It would be a very expensive procedure along with endless penalties if solicitors were responsible. I have a client who is waiting for an inheritance pay out. Only estate income is the tax due on capital of around £350k. Client is still waiting two years after probate was granted and solicitors have instructed accountants who are charging extortionate fees (£1k plus vat per year )to prepare the estate tax returns.

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By AndrewV12
24th Sep 2019 11:50

Pay CGT on property in 30 days is a bit steep, what happens if they have to pay off any existing mortgages or other finance/ charges, and will the proceeds feed back to the landlord in 30 days.

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By gpyyow
26th Sep 2019 10:40

Overseas sellers reporting NRCGT is usually told not to pay any tax due till they receive a payment reference - this is only issued very much later (sometimes 3 to 6 months after filing). How should they pay?

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