Capital gains tax – Do the new rules always apply?

From 6 April 2020, the same rules for the disposal of UK residential property apply to UK resident taxpayers as they have done to non-UK residents since the start of the tax year 2019-20. The new rules and other CGT changes are described here CGT changes

But do the new reporting rules always apply? It should be remembered the main purpose of these rules is to accelerate the payment of tax itself. There are several common situations where the sale (or gift) should be reported in the  normal Self Assessment (SA) Return anyway but no additional report is needed, because no actual tax is payable.

Among the commonest cases are where:

• There is a no loss/no gain transfer.
• Any taxable gain is fully covered by allowances such as spouse exemption, main residence relief or, of course, the Annual Exempt Amount, which remains at £12,000 for 2020-2021.
• Losses already realised can be used to cover the gain in full.
• The sale or gift itself generates a loss.

It should also be remembered that if a normal SA return has been submitted before the CGT report would have fallen due, 30 days after completion, then that separate report is not needed. This is likely to apply mainly near the end of the tax year but it should not be overlooked.

The new rules apply not only to individuals but also to personal representatives and trustees. Personal representatives in particular should bear in mind that, if they transfer  or appropriate property to beneficiaries of the estate, it will be the beneficiaries’ responsibility to report and pay any tax due, not that of the personal representatives. Since the beneficiaries will only have 30 days from completion in which to do so, the personal representatives still need to ensure they provide the beneficiaries with enough funds and information to meet their liabilities, or face a negligence claim.

All of these examples require taxpayers to work out in advance whether they have sufficient reliefs or losses to cover the taxable gain – and this must be covered in full, partial cover is not enough. Unlike the Personal Allowance for income tax which is given automatically, all CGT reliefs must be claimed.  The taxpayer should consider the time scale for the disposal and, especially in the case of gifts where no sale proceeds will be realised, how long it will take to raise enough to cover the tax payments.

Ideally, the planning will place the disposal as close to the end of the tax year as possible, so that it can be covered in the normal SA Return. As long as the planning has extended to assembling all the information necessary to complete that return before the CGT report would have fallen due, the tax payer will avoid all the additional filing as well having the best part of nine months in which to pay the tax.