Changes ahead for CGT payment

HM Revenue & Customs is proposing, in less than two years’ time, to rewrite the rules around Capital Gains Tax, CGT, following the disposal of a residential property. The current timescale for payment is going to be slashed to 30-days.

From April 6 2020, a payment-on-account of CGT, will be required following the sale of a residential property. Draft legislation embodying HM Revenue & Customs proposals is expected this summer.

The payment will need to be made within 30 days of completion must be accompanied by submission of a ‘payment-on-account’ return. Amounts paid on account will be credited against the tax due for the year.

HMRC has published a technical consultation web-page considering the changes including:

• how the amount will be calculated
• administration of payments
• changes to the current payment on account system for non-residents who dispose of UK residential property.

Are you affected?

The changes will mainly affect those disposing of second homes and investment properties.

If you make a loss or if no CGT is payable, for example if the sale of your home is fully covered by Main Residence Relief then no ‘payment-on-account’ return will be required.  However, disclosure may still be necessary through the Self-Assessment tax return.

If the property has not been occupied as the main residence throughout the period of ownership and therefore only part of the gain on a property is covered by Main Residence Relief, an interim payment and return will be required in respect of the taxable element.

The proposals affect overseas residential properties. However, an exception applies if the gain is also taxed in the other country and double taxation relief is available, or the gain is taxed on the remittance basis.

The proposed revisions will not apply to companies.

Concerns

Under current legislation, taxpayers may have up to 665 days to pay the CGT due, depending on the date of the sale and the tax year into which it falls. This is hugely different to the proposed 30-day timescale.

This may cause cash flow issues, particularly if a property is gifted – no proceeds received – and a chargeable gain arises. In these circumstances a ‘payment-on-account’ return and interim payment will still be required. Therefore, it will be important to ensure sufficient funds are available to pay the CGT instalment within the timescale in order to avoid both interest and penalties.

One of the main concerns is the additional administrative burden. Each disposal may need to be reported on two returns; the new ‘payment on account’ return with a separate return for each sale and the self-assessment return. That’s a lot of form filling if there have been multiple property sales!

Disclaimer - All information in this post was correct at time of writing.