Capital Gains Tax for the Unwary

We are accustomed to reporting the disposal of residential and commercial property to HMRC as, unless an exemption applies, there will be a tax charge on the profit made on sale. This tax is called Capital Gains Tax. For those who own their own home and live in it, this tax is not generally an issue on sale because one of the exemptions is called “private residence relief” which means that the home in which you live is not taxed.

For the rest, capital gains tax could apply and the disposal needs to be reported to HMRC (even if the tax payer does not normally need to complete a Return).

Previously, any tax payable has not been due until the end of January following the tax year in which the sale occurred, and, therefore, time a sale correctly, and you could legitimately hold onto the tax for some 20 months before settling the same.

From 6th April 2020, those days are gone. Now, where a disposal gives rise to a potential liability to capital gains tax, the disposal must be reported and all the tax due be paid within 30 days of completion of the disposal. Failure to do this will probably result in interest and penalties and, even though the gains are reported within 30 days, this disposal will still need to be reported on a Self-Assessment Tax Return for the year of disposal (although credit will be given if the tax is already paid of course).

HMRC accept the administrative burden this will bring about and is developing a new micro service to allow customers to report and pay the tax if they are not already in the self-assessment system. However, the micro service itself is not expected to be available until next month when the 30 day countdown period will have already started for some. Let us hope its introduction does not experience any teething problems!

In addition to this, of course, a disposal which can bring about a capital gains tax charge is not just on sale, gifts of property can trigger a tax charge as well and in this case there will no disposal proceeds out of which the tax can be paid. Therefore, if you are considering a gift of any property to, perhaps, reduce your estate for inheritance tax purposes, this certainly should be given urgent and detailed thought now as completing the transfer this month, rather than next, could mean retaining the capital gains tax due on the disposal for many months more than it would from 6th April 2020 onwards.

If you require any advice please do not hesitate to contact the Probate, Tax and Trusts Department at Tolhurst Fisher on 01702 352511.

Author: Jane Sullivan