7 August 2021
Property Vendors Tripped up by New CGT Rules
New rules around the reporting and payment of capital gains liability which came into effect from 6th April 2020 have tripped up over 13,000 people during the second half of 2020, it has been revealed. HMRC issued fines of more than £1.3m where deadlines had been missed.
What are the new rules?
As of 6th April 2020, any UK resident individual, trustee or personal representative who sells or gifts a UK residential property must, within 30 days of completion, calculate an estimate of the CGT (capital gains tax) liability, and report and pay this to HMRC. Only those where a CGT liability will not arise, for example due to private residence relief, are exempt from these requirements.
This is a big change to miss, as taxpayers are used to only having to report after the end of the tax year when completing their self-assessment. It is not hard, therefore, to see why so many people fell foul of the new rules by simply not being aware of them.
Whilst the new rules are more likely to affect investors and second home owners, it is crucial that awareness of these measures is raised throughout the property market to ensure that vendors can be prepared by seeking advice and gathering the necessary information. Given the dramatic change, HMRC did allow a 'soft-landing' period where penalties would not be charged if the reporting deadline was missed relating to disposals that took place during April, May and June 2020. Given that the housing market all but shut down in March and April 2020, that 'soft-landing' period doesn't seem so generous in hindsight.
Being aware of the need to report the CGT liability is one hurdle, but even once that has been cleared, the next hurdle is making the report. HMRC wants reports to be made online through the UK Property Reporting Service. The UK Property Reporting Service is a standalone service and not part of the personal tax account.
However, the same Government Gateway login credentials which have been set up for a personal tax account can be used to access the UK Property Reporting Service. All taxpayers, even if they have appointed an agent to report on their behalf, will be required to set up a Property Account to make the report. There is some guidance on the HMRC website, and a step-by-step guide from the Association of Tax Technicians (ATT) is also available.
Whilst there is a possibility of reporting on paper under certain circumstances, these types of submissions will not benefit from the functionality offered by the online system, such as tracking payments and making amendments to the report. There is also the time taken for HMRC to process paper submissions and issue payment demands, although this time is not counted within the 30 day requirement.
Any in-year reporting which is made in this way is unlikely to contain final figures. This shouldn't be a problem for those who, were it not for the disposal of the property, would not be required to complete a self-assessment tax return. However, for anyone who already completes a self-assessment for another reason, such as landlords or the self-employed, the disposal should also be reported on the self-assessment tax return, as well as through the UK Property Reporting Service.
Whilst the relevant pages on the self-assessment tax return have been updated to allow details of previously reported disposals to be entered, there are some concerns about how the two systems will interact. The ATT is seeking additional and clearer guidance from HMRC in this regard.
For now, accountants and advisors should be aware of the rules and continue to remind their clients of them, rather than bolstering the number of taxpayers who have been fined for missing a deadline they didn't know existed.