You are here: Home - Retirement - Retirement planning - News -

All change for the Capital Gains Tax payment window?

Written by: Nigel May
Second homeowners selling their property may need to pay Capital Gains Tax within 30 days, rather than the usual 21 month window.

As rules currently stand, if a residential property is classed as your main or principal private residence, the gain arising on disposal, if any, will normally be entirely or in part exempt from Capital Gains Tax (CGT).

Any further residential property held will be subject to CGT on disposal at either 18% or 28% depending on your level of taxable income, above realisable gains of £11,700.

If CGT is due, unless you have reported the gain through the ‘Real Time Transaction Tax Return’ and opted to pay the tax straight away, CGT will be due by 31 January following the end of the tax year in which the property was disposed of. As an example, if you sold a residential property that was not your main residence on 30 April 2018, under current rules, the tax would not be due until 31 January 2020.

But at the 2015 Autumn Statement, it was announced that HMRC wanted to make paying CGT “simpler and quicker” for taxpayers, while addressing the fact that payment of CGT is “out of step” with the position of taxpayers within PAYE.

Proposed new Capital Gains Tax payment rules

The government has released a consultation proposing to make ‘payments on account’ of CGT when disposing of residential property.

While the new rules were originally intended to apply from April 2019, the proposals have been delayed until 6 April 2020 and draft legislation is expected this summer.

The main proposal states that UK residents who dispose of residential property on or after 6 April 2020 will be required to deliver a return to HMRC and pay any CGT due within 30 days of completion.

To confuse matters, normally the date of disposal for CGT purposes is the date of exchange of contracts but the proposed new rules set the CGT payment date by reference to completion.

In the case of disposal where there is simultaneous exchange and completion, the taxpayer’s payment window would drop from 21 months to roughly one month for disposals from April 2020.

It’s suggested that linking the payment of CGT to accounting for tax in respect of employment income is like comparing chalk and cheese. The PAYE system has operated since 1944, CGT since 1965 and our current self-assessment system has operated since the 1997/98 tax year. It has not been suggested in the 53 years since the introduction of CGT that payment of CGT initially by assessment by the Inland Revenue and latterly under the self-assessment system has been in any way anomalous.

What appears clear is that by substantially accelerating the payment of tax in respect of one type of profit, it sets the precedent to extend this across to other taxations currently under the scope of self-assessment. This will of course be attractive to the government. Speeding up payment of tax receipts so government accounts essentially operate on a cash basis will help massage the balance of payments figures (but only initially by comparatively small amounts as the yield from this measure is not great).

While the acceleration of the payment of CGT can be seen as part of the acceleration of payment of tax (which is in any case an inherent objective of the delayed ‘making tax digital’ programme), it is also founded on a fundamental error.

It pre-supposes that calculation of CGT in respect of the sale of a residential property is a simple matter. Sometimes it is. However, if you look at circumstances where for example, a property has been occupied as a main residence only during part of the period of ownership, where perhaps part of a property has been occupied as a main residence and part let out, where there is a property with a large garden or grounds or where a main residence property has been built in the grounds of what was the former main residence that has been sold on, these all carry with them complex aspects.

Following the introduction of the non-resident CGT provisions for UK residential property, there have been a plethora of cases heard by the Tax Tribunal regarding the imposition of penalties by HMRC for failing to make returns in time, when individuals weren’t aware they had a liability to report (even where no tax was payable).

The extension of the accelerated CGT payment system to sales by UK residents can be seen as a simple way for HMRC to raise further funds through the imposition of penalties.

Nigel May is tax partner at MHA MacIntyre Hudson

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Thomas Cook’s airport slots sold to easyJet and Jet2

The failed holiday company’s slots at Gatwick and Bristol have been sold to easyJet, and slots at Birmingham...
Thomas Cook’s airport slots sold to easyJet and Jet2

Royal Mint launches The Snowman 50p coin

In the run up to the festive season, The Royal Mint has issued a new commemorative 50p coin featuring The Snow...
Royal Mint launches The Snowman 50p coin

Mamas & Papas falls into administration

The parenting store has closed stores just days after rival Mothercare went bust.
Mamas & Papas falls into administration

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week

  • RT @Defaqto: Will your home insurance leave you out in the cold? 🤔 Only a fifth of home contents insurance policies, and a quarter of home…
  • RT @Defaqto: Will your home insurance leave you out in the cold? 🤔 Only a fifth of home contents insurance policies, and a quarter of home…
  • Will your home insurance leave you out in the cold? 🤔 Only a fifth of home contents insurance policies, and a quar…

Read previous post:
Spurs top the premier (house price) league

Houses near the north London club have seen large house price rises in the last 10 years.