Capital Gains Tax – New Reporting Rules

Christopher McNeill says: beware the transition period at the end of the tax year in which both reporting systems might apply to the sale of residential property.

After 5 April 2020, a UK resident must report and pay any CGT due within 30 days of the disposal of UK residential property being completed, using the new online “real-time” CGT reporting system (which HMRC is still trialling). Tax paid is treated as a “payment on account”.

In most cases, a normal ordinary Self Assessment (SA) Return will still need to be submitted within the current time limits, viz., by the end of the January following the tax year in which the disposal took place.

A key point of the new system has special application to sales, as opposed to gifts, since the new system measures the 30 day limit from “completion” of the disposal, whereas the normal rule for determining when a disposal actually takes place remains the date of exchange of sale contracts.

Most importantly, the new reporting requirements will not apply if a normal SA return has been submitted following the disposal, but only if the taxpayer has done this before the deadline for reporting under the new system.

Towards the end of the tax year, therefore, the taxpayer must take particular care. If contracts to sell are exchanged before 6 April 2020, the old rules will still apply regardless of when the sale completes, according to HMRC. In future tax years, because of the point about “completion” of the disposal – if the tax payer is not careful – so will the new rules.

Examples

1) A exchanges contracts to sell her buy to let property on 1^st April 2020; she has agreed to a delayed completion, which is set for 1^st June 2020, allowing certain works to be carried out before the sale is completed.

A submits her normal SA Return for 2019-20; she does so before 31^st January 2021, i.e., within the normal time allowed. As long as she meets this deadline, the new system will have no impact and her SA return will be processed by HMRC in the normal way. Any tax due can be paid at any time up to 31 January 2021 without any penalty arising.

2) A sells a further buy to let property one year later, exchanging contracts on 1^st April 2021 although this time completion takes place within the more usual four weeks, viz., 29^th April 2021. If now A files her SA Return any later than 28 May 2021, the liability to account for and pay CGT will have crystallised and a CGT report will have to be filed as well.

Similar penalties will apply as for the late filing of the normal SA return and will do so even if the SA return itself is correctly completed and submitted well within the existing time limits for SA Returns.