It’s been over two years since the introduction of so called ’60-day’ (originally 30-day) reporting. These rules represent a major change in the nature and timing of Capital Gains Tax (CGT) payments relating to residential property and agents are still reporting concerns, particularly around the interaction with self-assessment.
Under ’60–day’ reporting, a UK resident who disposes of UK residential property and makes a gain on which capital gains tax is due must calculate, report and pay the tax within 60 days of the completion of the transaction (prior to 27 October 2021, the deadline was 30 days from completion).
The rules primarily affect landlords and second home owners, but trusts and estates are also in scope and those who find they don’t qualify for full private residence relief – perhaps because they have moved out following a separation or because the property is inherited – may also find themselves needing to report.
The rules for UK residents are similar in form to those which have applied to non-residents since April 2015 – although non-residents must report even if no tax was due and from April 2019 have been required to report all their UK land disposals, not just residential property.
Reportable gains for residents and non-residents alike must be reported and the associated tax paid via a special online service, which requires the taxpayer to set up a CGT on UK Property account. Those that can’t manage the online process can report using a paper form.
For the first 20 months of the service there was very little guidance from HMRC on the operation of the legislation for UK residents. That has now improved, with the publication of an appendix to the main HMRC CGT manual at the end of last year. This appendix has recently been reformatted to better fit into the CGT manual structure, but no substantial changes have been made to the content.
There are various challenges with the reporting process, but one of the most common issues is the interaction with self-assessment. While reporting via the service can be sufficient for PAYE taxpayers to finalise their affairs, taxpayers who are within self-assessment must effectively report twice. The first ‘in-year’ report will result in a payment of their best estimate of the tax at that time, and then some details of the disposal must also be included on the self-assessment return to finalise the position.
A common problem when finalising 2020/21 returns was what to do if the taxpayer had paid too much tax ‘in-year’, as there was no effective method of recovering these overpayments. This has improved slightly for 2021/22, as HMRC will now allow in-year overpayments of CGT to be offset first against any other CGT liabilities, then other income tax and Class 4 liabilities shown on the self-assessment return. However, if there is still a repayment due after offset, this will not be repaid automatically and the taxpayer or their agent will need to contact HMRC by phone to arrange a refund.
Other common problems reported to us often relate to setting up the Government Gateway necessary to create a CGT on UK Property account. Even if the client’s IT skills are otherwise up to the challenge, we are still hearing reports that people are struggling to get through the ID verification checks which form part of the process.
We understand that work is being done behind the scenes to improve this, but in the meantime anyone that can’t manage to get set up online will need to phone HMRC on 0300 200 3300 to request a paper form. This is not ideal, as paper forms take much longer to process, are harder to amend, and the client will need to wait for a payment reference to be issued before they can settle their liability.
We are also still working with HMRC to determine what should happen when an individual has failed to submit an in-year report, and simply included the gain on their 2020/21 self-assessment return. HMRC did not confirm that in-year reporting had to be done before the self-assessment return until April 2022’s Agent Update and we did hear reports of people either being unaware that they needed to report in-year, or choosing to report via self-assessment only due to time pressures in January. Once a tax return has been submitted, it is not possible to use the online system to file an in-year report, but the obligation is still outstanding and the question of penalties in these circumstances is unresolved. We will continue to press for answers here.
As a final consequence of the standalone nature of the CGT reporting system, if the taxpayer changes their address, telling HMRC via any of the usual routes does not result in an update to their CGT on UK Property Account – so taxpayers who have reported disposals will need to log in to update this system and update their record there as a separate exercise.
Two years on, we are continuing to maintain a list of these and all the other oddities or problems that we are aware of in our ATT ‘User’s Guide’.