Since 6 April 2020, UK sellers of UK residential property, where capital gain tax (CGT) is due are required to file a separate tax return within 30 days of completion and pay their estimated tax due at the same time.
So far, according to the Office of Tax Simplification (OTS), a third of returns made since this rule was introduced have missed the 30-day deadline. There was however a deadline extension when the system first came in which may account for some of these figures.
Until the 2020/21 self-assessment cycle is complete it is difficult to know how many people were unaware of the change in rules and will therefore include the gain in their regular tax return, in accordance with the previous system. It is anticipated there will be a significant number who have missed this extra return and early tax payment.
As the OTS says in its recently released second report on CGT there are a number of probable reasons for this. Most people interact with the CGT system infrequently, and there seems to be a lack of awareness about the changes. People are unlikely to read reports regarding changes to the tax system unless they are relevant to them, so anyone not contemplating selling their property at the time this was publicised may be unaware.
Unless the taxpayer employs an agent, they will interact with HMRC directly on this return. None of the other parties involved in the transaction are required to tell them of their responsibility to make a return, so with the complexities of a property sale, and possibly a home move, it could easily be overlooked.
Thirty days is a very tight window to make a return. During this time the taxpayer needs to register with HMRC, which can be a challenge in itself, and locate all their records of the cost of the property and improvements. If the property has qualified for private residence relief for only part of its period of ownership, meaning some periods are exempt and others taxable, the calculation can become extremely complex, as the history of ownership for a number of properties may need to be reviewed. If the sale is part of a divorce settlement, they may not even have access to the proceeds in time to pay the tax concerned.
The OTS offers several sensible suggestions, the most helpful being to extend the deadline to 60 days to give taxpayers a more realistic chance of calculating their position. There then needs to be a big push to raise awareness of the rule change. The most obvious route to this would be via estate agents and conveyancers. The OTS also felt the guidance on preparation of these returns needs improving. Having prepared many of these returns, I can say the deadline is challenging, even for tax aware clients with agents and Government Gateway access in place. Only 40 per cent of taxpayers are using an agent. For unadvised taxpayers, possibly interacting with HMRC for the first time, it must be a very daunting prospect.