Capital Gains Tax: Payment window for residential property gains

HM Revenue & Customs ('HMRC') has published a consultation on Capital Gains Tax ('CGT') regarding payments on account for residential property gains. HMRC are inviting views up until 6 June 2018 when the consultation period closes.

CGT on property disposals is usually accounted for and paid as part of the annual self-assessment cycle, which usually gives taxpayers between 10 – 20 months to make payment of their tax liability after the sale. However, HMRC are proposing that payment of any CGT liability would need to be made within 30 days from the date of conveyance when a residential property is sold or otherwise disposed of (e.g. by giving it away).

Similarly to the Non-Resident Capital Gains Tax ('NRCGT') regime which is already in force, anyone disposing of a UK residential property (resident or non-resident) who is liable to capital gains tax on the disposal, would need to submit an accompanying return to HMRC within 30 days which would contain details of the property disposal, CGT calculation and payment on account.

Those who are already in self-assessment would still be required to make the payment and submit a return within 30 days, as well as reporting the disposal on their annual tax return. Amounts paid on account would be credited against the individual or trust's tax due for the year.

The new rules would take effect from April 2020 and would mainly affect those individuals who are disposing of a second home or rental property, as there would be no requirement for CGT to be paid, or a return to be made, where the gains are accruing on a main residence that is fully covered by Private Residence Relief ('PRR'). Although homeowners should be aware that they may not qualify for full PRR if their garden or grounds including the buildings on them are greater than the ‘permitted area’ which is half a hectare (a little over one acre).

Trustees should also be aware of the upcoming changes as trusts can often hold properties where the gain is not covered by PRR.

As the introduction of the NRCGT regime had many problems (read our article for further information), we can only hope that HMRC carefully consider how they introduce the new rules from April 2020 with regards to making taxpayers aware of their reporting obligations and how the penalties for non-compliance are imposed.

Click here for more information on how we can help you with your residential property tax services.

If you would like any advice about NRCGT or would like us to file an NRCGT return on your behalf, please contact Jenna Fyfe.