New residential property rules to look out for

UK residents who are trying to dispose their UK residential property should be aware of the new rules which requires them to report and make a payment for their CGT (Capital Gains Tax) liability with a 30-day period of completion. This comes as a shock to many people. In fact, during the last six months of 2020, HMRC issued fines to approximately 13,113 people who failed to meet the new deadlines. The total fines amounted to more than £1.3m.

Overview

Starting from April 6, 2020, it is required that all UK residents, personal representatives, and trustees who are planning to gift or sell UK residential properties should compute, report and pay an approximate cost of the capital gains tax liability within a 30-day period upon the date of completion.

This is a huge change since the reporting is done within the year instead of reporting these disposals at the end of the tax year through self-assessment. Additionally, it also requires taxpayers to apply special rules to help them in figuring out their estimated CGT (Capital Gains Tax) liability prior to the end of the tax year. However, if the CGT liability of these residential property disposals does not arise then they are exempted from these reporting requirements. For instance, if the gain is being covered by the private residence relief.

Essentially, this new provisions can likely impact second-home owners and landlords. It uses the same rules for non-residents implemented in April 2015, and extended in April 2019.

Additional Knowledge

Despite the fact that the UK housing market was greatly affected by the first lockdown, fortunately, it has regained back with some force ever since it was reopened in May 2020. Viewings have continued throughout succeeding lockdowns. The increase in demand is made possible due to the fact that a lot of people are trying to change their lifestyle post COVID-19 as well as the SDLT holiday, which is eliminated from the end of June. It has seen great results since in some parts of the country there are enormous transactions for residential properties. Also, it is important that for those people who are expecting to pay CGT during these disposals should be aware of the new rules. In this way, they can make accurate plans ahead to they can comply to these new rules. For instance, they should contact their accountant as soon as possible so they can make the necessary computations and reports that need to be done.

Furthermore, this additional in-year report with time restriction is considered as a big change since most taxpayers are getting used to preparing their tax on a yearly basis through self-assessment. Although HRMC will not impose any penalty during the soft landing period. However, this is only applicable for disposals which occur during the first three months of the tax year 2020/2021. Unfortunately, for those who missed the deadline after this time will be charged with a £100 fine if they can’t provide any reasonable excuse.

Technical difficulties

After knowing the need to report, the next challenge for the taxpayer will be to make the report. Commonly, the report as well as the payment must be made online through the Report and Payment Service for Capital Gains Tax on UK Property.

Each taxpayer, including those who prefer to designate an agent in handling the report must set up a Property Account so they can proceed in using the service. Creating an account means that the identity of the taxpayer should be verified by going through the Government Gateway. After completing this step, the taxpayer will be given a username and a password which they can use in accessing their Property Account.

It might be a bit confusing for you but the UK Property Reporting Service is an independent service, and it is not connected with the Personal Tax Account (PTA) which is accessed by approximately 14 million people during the previous year. The only way that you can access this property service is to follow the links on the UK Property Reporting Service pages. Nevertheless, if you already have gone through the Government Gateway in order to access your PTA then you can use the same username and password on those pages to set up your Property Account easily.

However, the information found in gov.uk about this process is quite limited. If you want to know more then you can refer to the step by step guide published by ATT. The aim of ATT is to help its members in getting their clients to sign up and be designated to act.

Paper forms

Some members report that their clients are struggling in creating a Property Account since they were not able to verify their identity online. While other members report that some of their clients are not digitally knowledgeable making them impossible to carry on with the steps involved.

The good news is those taxpayers who are having difficulty in getting set up or appointing an agent online can always get in touch with the HMRC helpline by calling 0300 200 3300 to ask for help and support. However, for those who are having real difficulty, they can be referred to the HMRC’s Extra Support Team. However, if the taxpayer is unable to pass the identity checks or is not capable of handling the online requirements then the best alternative is to ask for a paper form.

However, reporting on paper form has some downsides too. For instance, the taxpayer as well as their agent will not be able to use some functionality which are only available on the online service. For instance, making online changes or monitoring the payments being made. Those who are reporting on paper forms also reveal that it will take a number of weeks before HMRC can process the forms and issue demands of payment.

Considering there is a 30-day payment deadline, the delays for processing paper returns could be a major concern.

Nevertheless, the time it takes for HMRC to process the paperwork will not be considered as part of the 30-day period. Practically, taxpayers who are using paper returns are only given 14 days to pay starting from the date when the demand for payment was issued by HMRC.

Future challenges

Since the report is created “in-year”, most likely it will only be comprised of estimations of the taxpayer’s income as well as estimations of the figures needed on the computation of the gains.

However, aside from the disposal of the property, if you are not required to make a self-assessment return, then most likely you can finalise everything
through the UK Property Reporting Service by making corrections on the estimations of the valuations, income, relief or residency through this service. By doing this, you can avoid making your self-assessment altogether. An accurate example of this would be a second-home owner who also has employment income and does not usually make self- assessment. However, there was a significant change on the income after the report due to job loss, unexpected bonus, changes in hours. As a result, the tax dues was affected.

On the other hand, for landlords and other taxpayers who have made self-assessment for other reasons, such as other gains or losses which needs to be considered in finalising their CGT, it is relevant that the disposal must be reported again to become part of their self-assessment. You can refer to the
SA108 pages if you want to request information about your previously reported disposals.

At present, there are many ineffective features of the process. That is why ATT is trying to communicate to HMRC about this so they get a clear guideline on how the self-assessment and “in-year” reporting interact.

Most agents are getting worried in case a person will receive a refund of the CGT being paid for the year. This is because it seems that the HMRC’s self-assessment calculation will not permit any excess to be offset against a bigger self-assessment liability. This is why, several professional bodies are trying to discuss this with HMRC. For more information about this and other issues , you can visit the Agent Forum of HMRC. If you are interested to join in this forum, then you can go here.

Meanwhile, the best thing that the advisers can do is to always remind their clients about the new rules. In this way, taxpayers can avoid paying penalties for failure to comply an obligation which they are not aware.