We can all breathe a sigh of relief. The Autumn Budget has announced the extension of the deadline for the reporting and payment of CGT on disposals of UK land. The time limit extends from 30 days to 60 days where legal completion takes place on or after 27 October 2021. The change is certainly welcome. However, even extended, the deadline is challenging and easily missed. So why are taxpayers getting caught out and fined?
Since 6 April 2015, non-residents have been obliged to make an NRCGT return for disposals of UK residential property within 30 days of completion of a relevant transaction. These requirements were extended with the extension of NRCGT in 2019. Non-residents must now make a CGT property return on disposals of all UK land and buildings and disposals of shares and other interests in property rich companies , whether or not a chargeable gain arises. Where there is a CGT liability, they must also make a payment on account of that CGT within the same 30/60-day deadline. As of 6 April 2020, UK residents are also brought within the requirement to complete a CGT property return and make payment within 30/60 days of completion. However for UK residents the requirement only applies to UK residential property where there is CGT to pay. For example, no return would be required in the case of a main residence where the principal private residence relief applied.
"...the next challenge is to calculate the gain and make the return through HMRC’s online system..."
The good news is that from 27 October 2021, the rules have been changed somewhat to allow for a more generous, but still stringent, 60-day period from the date of completion to make the return and to pay any resulting tax. While this may seem straightforward and not too concerning, even if the time to turn these returns around is limited, in practice there are several impediments that can make this requirement a dangerous pitfall for the unwary!
There are a number of exclusions from these rules. Companies are excluded, so non-resident corporate landlords will also escape these deadlines, as they now come under the charge to corporation tax. Disposals between spouses and other disposals specifically treated by legislation as giving rise to neither a gain nor a loss are excluded as are disposals made by charities and the disposal of pension scheme investments. There are also exclusions that may apply where a self-assessment return is required or filed disclosing the gain and at least as much CGT as would be payable on account within the 30/60 day filing period. It is worth noting that where a CGT property return is required, the gain must still be returned on any required self-assessment tax return.
Having determined that a return is required, the next challenge is to calculate the gain and make the return through HMRC’s online system. In essence, the gain is calculated as if the tax year theoretically ended on the date of completion. The notionally charged amount is therefore the amount a taxpayer is liable for in the tax year, minus any disposals that take place with a completion date after the one in question and ignoring gains on any other disposals to which these rules do not apply. Losses on disposals before the completion date, whether as a result of disposals within or outside these rules, may be taken into account, but losses after completion may not. The tax payable on account is reduced by any CGT already paid on account in respect of the tax year. The calculation will inevitably include estimates, such as the rate of tax, and it is important to disclose that this is the case if interest and penalties are to be avoided. If HMRC finds an estimate to be unreasonable, then interest and penalties may result.
Next hurdle: these calculations must be made using an online calculator or else uploaded with supporting evidence. In either case, a declaration must be made that the tax has been calculated to the best of the taxpayer’s knowledge at the time of filing. Amendments can be made up to the date a self-assessment return is due to be submitted, or 31st of January following the end of the tax year in which the disposal completed, whichever comes sooner. Late filing, late payment and inaccuracy all attract penalties.
And all of this is before any practical difficulties come into play. From 6 April 2020, returns must be made via HMRC’s online portal, and amendments are also made via the online portal from 14 October 2020. To access this portal, a Government Gateway code and password are required, with an alternative mechanism available for Non-Residents. Registration must be performed by the taxpayer before agents can be authorised via digital handshake. Personal Representatives cannot set up accounts in the name of deceased persons, but instead must register themselves and report gains on the deceased’s behalf.
None of these obstacles are of course insurmountable if you are prepared, methodical, have all of the necessary information to hand and make adequate plans ahead of time. However, even with 60 days (57 if you allow three days for payment to HMRC to clear) timings are tight – especially if you haven’t considered these rules before and aren’t registered with HMRC. The clock is ticking!