A walk-through of the real time capital gains tax service.
From 6 April 2020, UK residents within the charge to capital gains tax (CGT) face yet another change for direct disposals on residential properties – a return and payment of CGT has to be made within 30 days following the completion day for UK residential land (including buildings). The new regime applies to individuals, personal representatives, trustees and partnerships but not to limited companies within a charge to corporation tax on capital gains.
Failing to meet deadlines for submission and payment will trigger penalties. However, due to the slowdown in the property sales sector caused by coronavirus, HMRC has confirmed that ‘To help those selling properties familiarise themselves with the change in the rules and a new online process, HMRC is allowing a period of time to adjust and will not issue late filing penalties for CGT payment on account returns received late up to and including 31 July 2020'.
This is a significant change for people who would previously only have had to enter the details on their self-assessment return and pay the tax due in line with the self-assessment deadlines. You should have early conversations with your property clients in order to prepare them for the above steps and to avoid any unnecessary delays in filing and incurring penalties.
It should be noted that not all disposals are within the scope of this new regime. Disposals of an individual’s principal private residence (PPR) that does not produce a gain due to the main residence relief provisions within TCGA 1992 s 222 et seq do not need to be reported. Furthermore, the legislation also specifically excludes the following disposals:
non-residential property disposals
a no-gain / no-loss disposal ― transfers between spouses or civil partners
a grant of a lease for no premium to an unconnected party at an arm’s length transaction ― eg the grant of a short-term residential tenancy with no premium
a disposal made by a charity, or
a disposal of any pension scheme investments.
How to report and pay CGT for clients
HMRC online reporting of CGT service can be accessed via individual or organisations' Government Gateway ID. Authorised tax agents (ie accountants) can use their Agent Services Account (ASA) to report and manage their client’s CGT return. Accountants who already have an Agent Services Account (for MTD) do not need to create a new one.
As an agent before you can offer this service to your clients, you need to ask your clients to:
create a Government Gateway user ID if they do not have one
use their Government Gateway user ID and password to sign in and create a Capital Gains Tax on UK property account (this generates a 15 letters/digits property code)
give you their property account number
give you their UK postcode or country of residence - these details must match their Capital Gains Tax on UK property account details.
Sign in to your agent services account then select ‘ask a client to authorise you’. After you’ve been authorised, you’ll need to:
sign in to your ASA
select ‘report and pay a client’s Capital Gains Tax on UK property’
enter your client’s Capital Gains Tax on UK property account number
enter your client’s UK postcode or country of residence - these details must match their Capital Gains Tax on UK property account details
Go to ‘manage account’ at the top of your client’s Capital Gains Tax on UK property account to update the contact details for the account.
How to calculate capital gain on disposal of residential property
The self-assessed calculation of the amount payable on account takes into consideration unused losses brought forward or in the same tax year and the person’s annual exempt amount (individual £12,300 – 2020/21), whereas any anticipated losses on future disposals cannot be taken into account. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.
If your client is already within self-assessment and has to complete one, you will need to ensure that the gain is also included on their self-assessment tax return.
Once the provisional calculation has been submitted and the tax paid, it cannot be reduced (for example, because your client made a capital loss later in the year) until the client submits their self-assessment return.
CGT on residential property and carried interest is payable at rates of 18% and 28% as opposed to the normal capital gains tax rate of 10% and 20% respectively for basic and higher rate taxpayers.
Non-residents are already required to file a capital gains tax return within 30 days of the completion for all direct or indirect disposals of UK land (both residential and commercial) which met the non-residence condition. The return is required irrespective of whether a gain accrues on the disposal or not.
All other CGT disposals are normally reported on the seller’s self-assessment return submitted from 10 to 22 months after the disposal takes place.