Significant changes to the administration and payment dates of UK capital gains tax (CGT) on property disposals are in the process of being introduced.
Currently, when a UK resident incurs a CGT liability on the disposal of residential property, the gain is reported within their annual self assessment tax return and the liability is payable by 31 January following the end of the tax year in which the disposal was made.
From 6 April 2020, when a UK resident disposes of UK land, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and the full liability will be payable within that same 30 day window.
In practical terms, this will mean an increased compliance burden for such taxpayers. Each relevant property disposal will require its own ‘payment on account’ return in addition to the person’s regular annual self assessment tax return, resulting in the potential for multiple filing deadlines throughout the year.
In order to file the payment on account return, a potentially complex CGT calculation will need to be prepared within 30 days, which will mean that full up to date records will need to be available at that time. A reasonable estimate of the person’s expected income for the year will also be needed in order to apply the correct CGT rate to the calculation, along with details of their available unused annual exemption and any unused capital losses.
Currently, UK resident individuals and trusts have between 10 and 22 months to pay any CGT due on the disposal of residential property, meaning that in the interim they can use those funds at their own discretion. This advantage will be taken away under the new regime, which could have a significant impact on cash flow for sellers.
The new reporting requirements will not apply where there is no CGT payable as a result of the disposal; ie where a gain is covered by the annual exemption or available capital losses, or relieved in full by a main residence relief claim.
It is important to note that the reporting requirements were intended to apply to both UK and overseas residential property disposals by UK residents, but overseas properties were excluded from the Finance Act 2019 legislation and it remains to be seen whether they will be included in Finance Act 2020. If it is, there are likely to be exceptions for gains: that are taxable by the country in which the property is located and qualify for double taxation relief; or, that are taxable on non-domiciled individuals on the remittance basis.
From 6 April 2015, non-UK residents disposing of UK residential property have been required to submit a CGT return within 30 days of completion of the sale and pay any CGT within the same window, unless they were already within the self assessment regime. However, with effect from 6 April 2019, as with the changes due for UK residents, the option to defer the tax payment until 31 January after the end of the relevant tax year is removed.
Possibly of even greater significance to non-UK residents is that the scope of UK CGT has also been extended from 6 April 2019 to include non-residential land and property (ie commercial property and investments in UK property rich entities) owned by non-UK residents, although rebasing applies so that the deductible cost on disposal of such property held on 6 April 2019 is based on its market value on that date.
The accelerated payment system seems a simple way for HMRC to collect CGT from the sale of property far quicker than previously, with the arguably unintended consequence of penalties for those who fail to file returns on time. Based on case law evidence of such failures under the non-resident CGT regime since 2015, it is clear that many taxpayers have been unaware that there was a 30 day filing requirement in the first place, but the Tribunal has not generally been sympathetic to those affected. It therefore pays to be aware of your obligations and to take advice wherever necessary.
For more information please get in touch with Zoe Martin.