The HMRC service for reporting and paying capital gains tax on UK residential property has been problematic since it was introduced in April 2020. Two new problems have emerged since the start of this tax year. ICAEW’s Tax Faculty explains the impact.
It is a challenge for taxpayers to be aware of the poorly publicised requirement to report and pay capital gains tax (CGT) on UK residential property within 30 days of completion.
Even where they are aware and are proactive in dealing with the obligation themselves or appointing their agent to do so, the process has proved to be far from straightforward.
ICAEW TAXguide 15/20 has been made available to all ICAEW members to help with the process.
Two new issues have arisen since the start of this tax year. The first is resulting in taxpayers having to complete paper returns to avoid incorrect tax calculations and the second means that taxpayers cannot offset overpaid CGT against an income tax liability, forcing them to pay twice and reclaim the CGT.
There is a problem with submitting a return for a disposal in 2021/22 if one has already been submitted for a disposal in 2020/21. If a return is submitted in this situation, an incorrect calculation is likely to be received.
HMRC has advised taxpayers in this position to contact its CGT helpline and request a paper return.
HMRC has not provided a timeframe for fixing this issue but the fact that it is advising the completion of paper returns when there is already a processing backlog of several months suggests that the fix may not be made soon.
As the first self assessment tax returns are filed for 2020/21 it has become apparent that HMRC systems are not allowing CGT payments already made in accordance with the 30-day obligation to be offset against income tax due for 2020/21.
CGT paid during 2020/21 on UK residential property: £50,000.
Liability per 2020/21 self assessment tax return:
- Income tax: £20,000
- CGT: £40,000
- Total: £60,000
Net amount due to HMRC: £10,000.
HMRC is insisting that the £20,000 income tax be paid, and that £10,000 CGT be reclaimed by amending the original CGT UK residential property return.
This is clearly extremely inefficient for HMRC, the taxpayer and the agent.
The matter has been raised by ICAEW's Tax Faculty with HMRC and discussions are ongoing.
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