New ‘payment on account’ tax regime for capital gains tax – April 2020First Published: September 2019 | Available in: Property Articles Your Property Network
From 6 April 2020, a CGT Tax Return will need to be filed, and a payment on account will need to be made, within 30 days of the disposal of a residential property, in most cases. This article looks at how this new CGT regime affecting almost all landlords will work in practice.
The new ‘ CGT Payment Window’ tax regime, from April 2020
In the Autumn 2017 Budget, Government announced a new requirement for UK residents to make a payment on account of CGT (Capital Gains Tax), within 30 days of the ‘disposal’ of a residential property. A ‘disposal’ usually means a sale of a property, but can also mean a gift of a property, or beneficial transfer in some other way.
The logic of this change is to mirror the requirement when purchasing a property to file an SDLT Tax Return, and pay the SDLT due, within 30 days of completion of the purchase. Of course, a cynic might think the real logic is to allow HMRC to collect tax earlier!
A formal consultation with tax advisers and other stakeholders was concluded in June 2018, and the new changes will become law as part of the Finance Bill 2019, and legally in force from 6th April 2020. A new Schedule to TCGA 1992 (Taxation of Chargeable Gains Act 1992) will set out the underlying tax law dealing with this change.
OK, how will this work in practice?
The new regime will require that a CGT Tax Return is filed within 30 days of the disposal of a residential property, and the CGT calculated paid within 30 days.
As with other aspects of tax Self-Assessment, the CGT due is to be self-assessed by the taxpayer (or their tax adviser), and will take account of any capital losses and unused CGT Annual Exemption. The CGT rate applying to any capital gain (i.e. 18% or 28%, currently) will be determined via a reasonable estimate of that year’s taxable income. Reasonable estimates and apportionments will be allowed when calculating the capital gain, if accurate data isn’t available before the payment deadline.
However, no CGT Tax Return will be required where the taxpayer has calculated that there is no CGT due (e.g. due to Principal Private Residence Relief, or for small gains covered by unused capital losses and / or the CGT Annual Exemption.
How does this affect UK non-residents?
The new legislation will also replace and extend the current reporting and payment regime for UK non-residents.
Currently, UK non-residents are required to report any ‘reportable’ capital gains within 30 days, although payment of the tax due is only required as part of the usual cycle of Self-Assessment tax payments i.e. tax due on gains made in a tax year is payable by 31 January following the tax year-end.
From 6 April 2020 this will be aligned with the UK-resident new regime to require both UK residents and non-residents to make a CGT payment on account within 30 days of a property disposal. And, from April 2019, UK non-residents will also be taxable on the sale of non-residential property (which previously was non-taxable).
How will HMRC enforce the new rules?
It will be incumbent on conveyancers, including solicitors, to ensure that clients are made aware of the requirement to file a CGT Tax Return if the client’s circumstances are such that this is required (just as it is incumbent on conveyancers, including solicitors, to ensure that SDLT Tax Returns are filed, with the tax due carefully calculated).
HMRC will have a separate right to investigate (via Tax Enquiry) any CGT Tax Return, including the consistency with the Self-Assessment Tax Return subsequently filed to include the capital gain. The Enquiry window for this (the time limit for HMRC to investigate the CGT Tax Return) is still to be confirmed, but is unlikely to be less than 9 months (to mirror the SDLT Tax Return Enquire window).
HMRC have real-time access to the Land Registry, and so can track and investigate gaps and missing returns using increasingly sophisticated technology. Plus, many property investors will be deterred from paying any CGT late as any penalties, surcharges and late-payment interest would show up on their annual Tax Year Overview, which lenders routinely ask to see during the mortgage underwriting process.
The late or non-filing penalty regime has not been formalised as yet, however is likely to mirror that of the SDLT Tax Return system, with a minimum £100 late-filing penalty plus subsequent penalties for persistent late or non-filing, along with late-payment interest.
Landlords are used to filing an SDLT Tax Return, and paying any SDLT due, within 30 days of a property purchase. Government has decided that a logical change to the landlord tax regime is to require landlords to file a CGT Tax Return, and pay any CGT due, within 30 days of a property sale.
For most landlords, it’s probably not a major issue to pay what CGT is due earlier than would otherwise be required – although it’s yet another extra compliance requirement for a landlord to contend with, another point at which a ball could be dropped and a penalty incurred, and arguably adds to the already burdensome regulatory regime that UK landlords have to navigate. On the other hand, at least the basic calculation of CGT due, and rates and allowances that apply, haven’t been changed for the worse … small mercies!