The Capital Gains Tax debacle continues…..

The process for reporting and paying capital gains tax (CGT) on UK residential property has been problematic since it was introduced by HMRC in April 2020. 

Two new issues have arisen since the start of this tax year;

The first results in taxpayers having to complete paper returns to avoid incorrect tax calculations. The second means that taxpayers cannot offset overpaid CGT against an income tax liability, forcing them to pay twice and reclaim the CGT.

Issue 1 - Incorrect calculations.

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.

Issue 2 - Offsetting overpaid CGT.

As the first self-assessment tax returns are filed for 2020/21, it’s become apparent that HMRC systems are not allowing CGT payments that have already been made in accordance with the 30-day obligation to be offset against income tax due for 2020/21.

Let’s give you an example:

Let’s say you paid £50,000 CGT during 2020/21 for a UK residential property.

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.

It’s already a challenge for taxpayers to be aware of the poorly publicised requirement to report and pay capital gains tax on UK residential property within 30 days of completion as it is.

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.