From 6 April 2020, Capital Gains Tax due on the disposal of residential properties will be payable within 30 days of the completion date. This is another step in the acceleration of tax payment dates
The delay between making a capital gain and paying the CGT due can be as much as 22 months. For example, the CGT arising from a gain made by a UK resident individual on 6 April 2019 will be payable by 31 January 2021.
In 2015, certain non-resident landlords were the first to be hit with an acceleration of tax payment period under the non-resident capital gains tax (NRCGT) rules. This tax was payable on gains arising from UK residential property, but only in respect of gains accruing from 6 April 2015 to 5 April 2019. Larger corporate landlords who paid the annual tax on enveloped dwellings (ATED) on their residential properties were liable to pay the ATED-related gains charge instead of NRCGT.
The transaction subject to NRCGT had to be reported within 30 days of the completion date, whether or not there was tax to pay. This short reporting period generated a lot of late filing penalties for taxpayers who weren’t advised of the change in the law, or in some cases were incorrectly advised by HMRC (Kirsopp TC07064).
The NRCGT was also payable within 30 days, but taxpayers who were already registered with HMRC for self assessment could defer that tax so it was payable with their normal SA tax.
Finance Act 2019 transformed NRCGT so it now applies to gains arising from the disposal of any type of UK land or property which accrue from 5 April 2015 (residential property) or 5 April 2019 (non-residential property). This includes gains arising from indirect disposals of property such as where shares in a property-rich company are sold. Gains accruing from periods before April 2019 (or April 2015) stay out of the UK tax net if the landlord remains non-resident.
The NRCGT is also potentially payable by all non-resident landlords, as the ATED-related gains charge is abolished from 6 April 2019.
The NRCGT is charged at the normal rates of CGT for the taxpayer concerned, so corporates pay at 19% (corporation tax rate) and individuals, trustees and personal representatives pay at 18% or 28%. The tax is due within 30 days of the completion date for all transactions (with no deferrals), although as most properties have a base value at 5 April 2019, few gains will actually be subject to NRCGT in 2019/20.
In 2018, the government proposed that CGT would be payable “on account” within 30 days of the completion date for all UK residential properties disposed of by a UK resident. This change was due to come into effect on 6 April 2019 to coincide with the new NRCGT rules, but it was delayed until 6 April 2020.
The “on account” description of the tax payment is a misnomer as the full amount of CGT will be payable within 30 days, alongside a new online property disposal return. I suspect this return may look much like the existing real-time CGT report, except it will be possible for HMRC to enquire into the property disposal return independently of the taxpayer’s SA return.
If there is no gain to report or the gain is covered by exemptions or losses, the taxpayer won’t have to complete a property disposal return. It seems a lesson has been learned from the hundreds of late-filed NRCGT returns which reported little or no gain.
If there is a taxable gain to report, the taxpayer must calculate the CGT due taking into account their annual exemption for the year and guess at the correct rate of CGT to apply (18% or 28% based on 2019/20 rates).
After the end of the tax year, the taxpayer will complete their self assessment tax return, including the property gain. Once their full income, gains and losses for the year are calculated, the true amount of CGT will be ascertained and any “on account” payment will be deducted. This could result in a repayment of CGT for the taxpayer.
Clients need to tell their tax advisors about their residential property sales as soon as they are agreed, so the tax due can be calculated and the property disposal return submitted to HMRC within 30 days of the completion date.