30 day reporting for Capital Gains Tax – don’t get caught out
It has now been over a year since the 30-day deadline was introduced for reporting and paying a Capital Gains Tax liability on the sale of a residential property by a UK resident, although the requirement has been in place for a few years for non-residents. Under the new system, a taxpayer needs to submit a return using their Government Gateway account and pay the Capital Gains Tax due within 30 days of the date of completion. A return is not due if there is no Capital Gains Tax to pay.
The tax is an estimate as the final amount of tax due may not be known until a taxpayer’s tax return for the year of disposal has been finalised, or if a return is not required until after the end of the tax year and their total income is known. The eventual amount due will be determined by various factors including a taxpayer’s income for the year of sale (the year in which contracts are exchanged rather than when completion takes place) and other capital gains and losses made in the year of disposal. Any under or over payment of tax is dealt with either through Self-Assessment or by amending the property return.
When a property is owned by more than one individual, each person needs to submit a separate property return using their own Government Gateway account to report their share of the gain and resulting tax liability.
Trustees, Executors, and those acting under a Powers of Attorney need to submit a return using one of their own personal Government Gateway accounts. There is no need for them to each individually make a disclosure.
The new reporting and payment obligations do obviously mean that tax is paid earlier than was previously the case and whilst the funds are still available if there is a cash sale. This obviously limits the possibility of the funds being spent on the more exciting things in life such as a new car or holiday, and then having to fund the liability at a late date!
It can also remove some taxpayers from having to register for Self-Assessment just to report a capital gain.
The past year has been a learning curve for taxpayers, so what observations do we have?
- 30 days is not a lot of time! It is therefore sensible to think about the process as soon as you consider disposing of a property. If the deadline is missed penalties will be charged, which start at £100 per return.
- Solicitors are not always advising their clients of the new requirements when they deal with the conveyancing.
- Gifts of property are sometimes overlooked. The gift of a property to for example a son or daughter may give rise to a Capital Gains Tax liability and therefore be caught by the new rules as the transfer takes place at open market value.
- Whilst accountants and tax advisors can submit returns on their client’s behalf, a client does need to have set up a Government Gateway account through which the report is made. If one is not already in place, it can sometimes take a bit of time to get up and running and can significantly eat it into the 30-day window, so it is best to do this as soon as you know you are going to sell a property. Whenever a new system is introduced, there are inevitably teething problems. We have found that setting up the account does not always work as smoothly as it should, and we are aware from recent discussions with HMRC that there are currently issues with the system. Regardless of whether you are likely to have to report a Capital Gains Tax liability on the sale of residential property in the short term, for other reasons it may be sensible to set up your Government Gateway account. You will for example be able to obtain a state pension forecast.
- There is a paper form available from HMRC if a taxpayer is struggling to set up a Government Gateway account or there are problems submitting an online return. These are only issued if ‘all other options have been exhausted’, but it is good to have an alternative if technology fails!
If you would like to discuss the topics explored in this article, do speak with your usual Kreston Reeves contact.
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