Capital Gains Tax – New Reporting Rules
Christopher McNeill says: beware the transition period at the end of the tax year in which both reporting systems might apply to the sale of residential property.
After 5 April 2020, any CGT due must be paid and reported within 30 days of the disposal of residential property being completed using the new online “real-time” CGT reporting system (which HMRC is still trialling). Tax paid is treated as a “payment on account”.
In most cases, a normal ordinary Self Assessment (SA) Return will still be needed, and submitted within the current time limits, viz., by the end of the January following the tax year in which the disposal took place.
A key point of the new system has special application to sales, as opposed to gifts, since the new system measures the 30 day limit from “completion” of the disposal, whereas the normal rule for determining when a disposal actually takes place remains the date of exchange of contracts.
Most importantly, the new reporting requirements will not apply if a normal SA return has been submitted following the disposal, but only if the taxpayer has done this before the deadline for reporting under the new system.
For the next two months or so, therefore, the taxpayer must take particular care. If contracts to sell are exchanged before 6 April 2020 when the old rules will still apply regardless of when the sale completes, then because of the point about “completion” of the disposal – if the tax payer is not careful – so will the new rules.
A exchanges contracts to sell her buy to let property on 1st April 2020; she has agreed to a delayed completion, which is set for 1st June, allowing certain works to be carried out before the sale is completed.
A submits her normal SA Return for 2019-20; she does so before 1st July, i.e., within 30 days of completing her sale. As long as she meets this deadline, the new system will have no other impact and her SA return will be processed by HMRC in the normal way. Any tax due can be paid at any time up to 31 January 2021 without any penalty arising.
Had A filed any later than 30 June 2020, then the liability to pay CGT would have crystallised. Similar penalties would apply as for the late filing of the normal SA return and would do so even if that SA return is later correctly completed and submitted within the existing time limits.
For the remainder of 2019-20, the taxpayer should ensure that if at all possible the old system is used. Even then, it is essential that the normal SA Return is submitted before the new CGT report becomes due.