Looming on the horizon are some most unwelcome changes in the way that UK taxpayers will have to report and pay for capital gains tax (CGT) on residential properties in the future. Jon Hook, managing director at Norwich Accountancy Services, discusses.
(These changes will not apply to UK resident companies and these rules already exist under a similar regime for non-residents).
At present, a capital gain made by a UK resident individual is reported through the self-assessment tax return regime. This means that, if an individual disposes of a property anywhere, say, between April 6, 2018 and April 5, 2019 it will be notified on his or her 2018-19 tax return – which does not need submitting until January 31, 2020 (and the tax is due on the same day).
The current system means that it can be anywhere between 10 and almost 22 months before the CGT is returned and settled. (This regime works in a similar way for trusts and partnerships).
The government’s intention is that within 30 days of the residential property’s disposal, the beneficial owners (who are UK residents) must prepare a provisional CGT return and make a provisional payment on account of the CGT ultimately to be due. This will be in addition to the existing CGT aspects of self-assessment. In other words, taxpayers will still have to fill in the CGT pages of their self-assessment tax returns and pay any outstanding CGT by January 31 after the tax year in question.
The new regime will apply for disposals made on or after April 6, 2020 – so just over a year before these changes come in.
You may well ask: “Why do we have to report on the same thing twice?” Well , the reason is because every tax year is dealt with in isolation and it is only until the end of the year that you can truly aggregate all income, gains, losses, deductions and reliefs to formulate a properly reconciled and final tax position.
Having to report and make a provisional payment just 30 days after disposal seems far too short a reporting window for taxpayers and their advisers who have the unenviable job of putting together the provisional computations including details such as original cost, incidental costs on acquisition, enhancements etc, which is difficult – especially if the property has been owned for many years. Exemptions to provisional reporting, however, do apply where there is no CGT to pay such as:
- When there is a ‘no-gain/no-loss’ transaction such as between spouses and civil partners.
- Where the gain is covered by private residence relief.
- Where any losses or annual exemption are sufficient to cover the gain.
Other imperfections are that there is no facility to reduce CGT payments on account (that is, get some of the provisional CGT back) if the taxpayer makes a capital loss later in the tax year – clearly the government is not too concerned about inconveniencing taxpayers here. In essence, this is all about getting the same money more quickly into the avaricious hands of the Exchequer! What’s new?