HMRC to speed up CGT payments for Residential Property Sales

Under current rules, UK resident individuals who dispose of chargeable assets must disclose the transactions on their self-assessment tax return due by 31st January following the tax year of disposal and pay the capital gains tax (CGT) by this date. For CGT purposes, the date of disposal is the date on which an unconditional contract for sale is exchanged.

This affords the taxpayer time within which to make planning decisions. For example, they would be wise to delay a disposal due to take place in March or early April until after the 5th April, giving 22 months before they need to pay the resulting CGT liability. They can consider investing in SEIS or EIS shares and deferring any resulting gain until a later disposal of the shares in question.

However, under proposals put forward by HMRC, the CGT regime is almost certain to change from April 2020. Individuals will need to submit a new ‘payment on account’ return and pay the CGT due within 30 days of completion of each residential property disposal. Taxpayers will still need to disclose the disposal(s) on their self-assessment tax return as normal. Please note the 30-day period runs from the date of completion, not the date of exchange of contracts.

This new regime is very similar to the non-resident capital gains tax (NRCGT) regime, much criticised by Judges and leading tax advisers as having been “passed by parliament without any proper consideration of what it would mean in practice”.

Individual taxpayers, in addition to having the sales detail to hand, will need to have historical costs of acquisition, enhancement expenditure, and relevant valuations easily obtainable in order to meet the 30-day deadline.

Cashflow could be a particular difficulty for those individual taxpayers who have gifted the residential property to family members because they will have a CGT liability based on the property’s market value without any net sale proceeds from which to pay the dry tax charge.

The legislation will need to spell out how the payment on account should be calculated, including how to deal with capital losses within the same tax year, capital losses brought forward from earlier tax years, other gains arising within the same tax year, and the allocation of the annual exemption.

It may also require amendments to well-known CGT deferral mechanisms like investing in EIS shares in the period beginning 12 months before and ending 36 months after the date of disposal for which you wish to claim relief.

We will be watching this space closely on your behalf, however, now might be a good time to consider moving or acquiring your investment property through a limited company as the rules won’t apply to corporates.

If you would like any additional information regarding accelerated capital gains tax payments or would like to discuss your tax affairs in general, please don’t hesitate to get in touch.