Capital Gains Tax: payment on account for residential property gains

HMRC have recently published a consultation document about their proposed changes to the calculation and payment of capital gains tax (CGT) in relation to the disposal of residential property – but, practically, what might this mean for taxpayers?

CGT is normally calculated and paid for as part of the self-assessment cycle. This usually allows taxpayers to make payment of their CGT liability between 10 and 20 months after the disposal of qualifying assets, including residential property.

The premise behind HMRC’s new consultation is that any CGT liability incurred on a sale or gift of residential property will need reporting and paying within 30 days after completing the transaction.

The scheme will require anyone disposing of residential property (in both the UK and overseas) to complete a return showing the calculation of the CGT liability and to make a payment on account of that liability. No return will be required where no CGT is payable; for example, if the gain on disposal is covered by Principal Private Residence relief or if there is no gain or a loss.

Penalties will be incurred and interest will be charged on late payments if the 30-day deadline is missed. This places taxpayers under increased pressure to complete the return and find the funds to make a payment on account.

Yet, the proposed scheme does not negate the need for taxpayers to still report the gain on their self-assessment tax return as usual. The rationale behind this continued requirement is to allow any losses or non-gains on other disposals to be offset against the payment on account.

This “double reporting” of taxpayers’ CGT liability potentially increases the professional fees a trust or an individual will incur. This is because the information needed to complete the return will potentially have to be circulated between a number of professional advisors as well as to the client. Following the completion of their self-assessment return, taxpayers may then need to request a refund from HMRC if losses realised on other disposals mean that an individual has overpaid on account their CGT liability for a tax year. In reality, it is likely the proposals will lead to increased costs and hassle for taxpayers.

However, Roythornes is easily equipped to streamline this process for taxpayers. The Property department can manage the conveyancing aspect of the transaction and Private Client team members are experts in providing CGT advice. The appointment of a new head of Trust Services, Carolyn Byrne, also means CGT and self-assessment returns can be completed within the firm. Providing conveyancing, tax advice and tax return services from under one roof, Roythornes has the expertise to execute each aspect of such a transaction in the most cost-effective way.  

HMRC are inviting responses to the consultation until 6 June 2018. If the proposal goes ahead, it is not expected to come into force until April 2020.

If you have any questions regarding the content of this article please contact a member of the Private Client team.