Change to capital gains tax obligations for property

14 September 2018

The Government published draft clauses for Finance Bill 2018-19 on 6 July 2018. The published material included draft legislation relating to the taxation of capital gains on property; notably a change to the reporting and payment on account obligations for  UK resident individuals and trustees with residential property gains. The changes will take effect for disposals on or after 6 April 2020, in line with announcements made at Budget 2017. 

What is the current deadline?

The current deadline for UK resident individuals and trustees to report all capital gains and pay the capital gains tax thereon is 31 January following the end of the tax year of disposal. This means that there is an interval of between 10 and 22 months between the disposal and the reporting/payment date.

What will the new deadline be?

From 6 April 2020, individuals and trustees with chargeable gains on the disposal of residential property will be required to make a return and payment on account within 30 days of completion. The changes align the due dates for reporting and payment with those applicable to non-UK residents, who are already subject to a 30 day payment window for gains on UK residential property.

The changes made by the draft provisions will only apply to gains on residential property (including residential property situated overseas where the gain does not qualify for relief under a double tax treaty ). The changes will not apply to other gains made by UK residents; for example on disposals of commercial or industrial property, qualifying student accommodation or care homes. For mixed use land, gains must be apportioned between the element attributable to residential property and the non-residential element. 

In calculating the charge, unused losses and annual exemption may be taken into account, and the tax rate to be applied is determined after making a reasonable estimate of taxable income for the year. However, losses anticipated to arise on future disposals later in the same year, and gains arising earlier in the same year to which the new rules do not apply, are not taken into account. In certain circumstances, subsequent events may enable a repayment to be obtained.

Penalties will apply for late or incorrect returns, and interest will be due on late payments. 

What is the change aiming to achieve and what actions are required?

The draft provisions are aimed at bringing the payment of tax closer to the time when profits and gains are realised. Although this should not, of itself, result in additional tax being raised, it provides the Government with a cash flow advantage. 

As we get closer to April 2020, UK resident individuals and trustees will need to consider whether an early sale with a tax cashflow advantage of up to 21 months is preferable to a later disposal. After this date, given that it is not permitted to anticipate unrealised losses, the order of disposals may be an important consideration in managing tax cashflows. It will also be important to ensure that records are up to date so that an accurate calculation of any payment on account due can be made within the 30 day window. 

For more information please get in touch with Adrian Benosiglio, Michael Searle, or your usual RSM contact.