New CGT rules to place enormous burdens on taxpayers

01 December 2015

Jackie Hall

In last month’s Autumn Statement we heard about the Chancellors plans to advance the reporting and payment dates of capital gains tax (CGT) on the sale of residential property under new legislation to have effect from April 2019.

CGT is currently reported and paid under Self-Assessment between 10 and 22 months after the disposal takes place, but as part of the drive towards personal digital accounts the proposal is for this timescale to be reduced to just 30 days.

With draft legislation due to be published in 2016 for consultation the announcement was short on detail leaving room for speculation as to how wide the provisions will be and what impact they may have for taxpayers. 

We already know that the new rules will not affect gains on those properties which are not liable for CGT due to Private Residence Relief (PRR). But how a second home will be defined for this purpose (and indeed for the new higher rate of SDLT) is still unclear but could have wide ranging repercussions for individual taxpayers. Will there, for example, be any sort of exemption where spouses separate and provision is made within the financial settlement for a new home for one partner and/or the children of the marriage?

One thing for sure is the requirement to report and pay CGT on account within just 30 days of the completion of the disposal will put an enormous strain on the organisational skills of many individuals who will now need to make sure that all paperwork is available within days of sale rather than having up to 22 months as under the current rules. The situation is even more difficult where a valuation is required to establish the base cost. Will estimates be accepted without penalty in these circumstances where a valuation proves difficult to establish in such a short timescale? 

The changes will create a number of challenges particularly for unrepresented taxpayers. Added to the new requirement for some individuals to update their digital accounts with HMRC four times a year by 2020 these new rules will almost surely increase compliance costs for all taxpayers.

So much for simplification!