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  • Katherine Bullock

UK Property Taxes – Running to keep up – the CGT reporting deadline

In a nutshell, as of 6 April 2020, UK resident individuals, trustees and personal representatives are subject to a requirement to report and pay CGT due on disposals of UK residential property within 30 days of completion. The new rules apply where contracts are exchanged on or after 6 April 2020 and where there is CGT to pay on the disposal. Whilst the reporting deadline runs from the date of completion (as for SDLT), the relevant date for disposal is the date of exchange under Section 28 TCGA 1992 where the contracts are unconditional or the date when a conditional contract becomes unconditional.

"this brief window…leaves little time to consider the complex issues which may arise with the disposals of UK residential property…"

This obligation is separate from the continuing NRCGT reporting obligations, which non-residents have been dealing with for a while now. Those requirements are wider applying to a disposal of any UK property and where no tax is due. In addition, a non-UK resident can now no longer defer the payment of CGT via their self-assessment tax return but must also pay within 30 days.

This brief window in which to make and pay any CGT owed leaves little time to consider the complex issues which may arise with the disposals of UK residential property and which are minefields in and of themselves: is the property a residential property - does it or did it contain a dwelling or even a potential dwelling? Are any gains covered by losses or exemptions? Is there a Trust involved, which complicates matters further by requiring a registration on the Trust Registration Service? Is the disposal being made as part of an Estate, in which case the informal procedure may be used and require additional steps to comply with both that and the online CGT reporting system?

It may be easy to overlook a deemed disposal, a gift or a main residence that does not qualify for full relief – a checklist might include second homes, holiday home, let property or inherited homes. On the other hand, disposals of property which qualify for main residence relief in full, where the chargeable gain does not exceed the annual exemption, where made to a spouse or civil partner or development profits charged to income tax do not need to be reported.

The amount that needs to be paid is, broadly, a reasonable estimate of the CGT payable if the tax year ended on the date of disposal. The annual exemption and any available losses arising prior to the date of completion may be deducted. This requires a calculation of the appropriate rate of tax which in turn requires an estimate of total taxable income in the relevant year. Claims and elections may be taken into account, but still need to be made. Whilst available losses on the disposal of any assets may be offset in estimating the CGT payable, gains on assets other than UK residential property are ignored.

If a disposal giving rise to a capital loss would have triggered the obligation to file had a gain arisen, a 30-day return and repayment claim may be made in respect of notional CGT already paid. Similarly, where an estimate changes, a further return may be filed to correct the estimate and, if appropriate, claim a repayment of tax. Care will be required to deal with situations where the taxpayer’s circumstances change unexpected particularly as it is unclear at present how HMRC will approach bona fide estimates which turn out to be deficient.

As with self-assessment tax returns, if the new deadline is missed, late filing and late payment penalties and late payment interest will apply. Based on past experience with NRCGT, a whole new series of appeals to the FTT in respect of penalties arising under these rules may well be on the cards and taxpayers may be well advised to take a prudent approach to estimating their liabilities, particularly where the tax position is uncertain.

Having determined that a 30-day report is required, the next hurdle is to make the return via the new (and occasionally unreliable) digital service provided by HMRC. This is still being developed and on 19 August 2020 was upgraded to allow gains on second and subsequent disposals to be reported online and to allow those with powers of attorney and personal representatives to also report gains. We can now only await with eager anticipation the functionality to amend returns once filed.

In short, CGT can be complicated and the tight deadline now in place for UK residents selling UK residential property can easily trip up the unwary. Build enough time into the process to avoid being caught out and take early advice on any points of uncertainty. If unsure about whether or not to report, consider how best to protect against interest and penalties. And where time is critical, careful consideration of the period between exchange and completion may provide valuable breathing space in appropriate cases.


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