CGT 30 day payment on account – HMRC consultation

A new HMRC consultation proposes that any Capital Gains Tax (CGT) liability that arises out of the sale or disposal of residential property will need to be paid on account within 30 days from April 2020.

These changes will mainly affect Landlords with rental property. Click here to view the consultation.

“Working out the amount payable on account

3.7 Following the disposal of a residential property it will be necessary to calculate whether an amount is due to be paid on account. This is to be done in a similar way as for calculating the amount of CGT payable for the tax year in which the disposal is made but only events up to the time the disposal is completed are considered.

3.8 In calculating the gain:

• chargeable gains that have been realised on the disposal of other(non-residential property) assets are ignored
• unused losses(either in relation to the disposal of residential property or other assets)are taken into account in the normal way,and
• available reliefs and the annual exempt amount are applied in the normal way. Anticipated gains and losses on future disposals are not taken into account.

3.9 The amount of CGT that is payable on account is the amount after applying the applicable rate of tax to the above net gain. For residential property gains the rateisnormally18% or 28%or both.

3.10 As a rule of thumb, no payment on account will be required (and no return will need to be made) where:

• the gain on the disposal is fully covered by private residence relief,or
• the disposal is either for no gain or a loss.

3.13 Where there is more than one residential property disposal in the same tax year, the calculation outlined at paragraphs3.7 to 3.9 above will need to be made following the completion of each disposal except that:

• all of the gains (or losses) on those disposals are taken into consideration; and
• any new losses that have arise non disposals of other assets can also be used.”

Nimesh Shah, partner at London accountants Blick Rothenberg, said, “The Government is obviously keen to collect CGT as soon possible, and the proposed 30 day payment time frame would be aligned with the current payment system for Stamp Duty Land Tax when a property is acquired.’

“However, the concern is that individuals, landlords and investors selling residential properties will need to file multiple returns throughout the year, meaning a further tax compliance burden.  In addition, it will be particularly bad in terms of cash flow for sellers, who will have to pay tax sooner.

“At the moment, individuals could have between 10 and 22 months to pay the tax due and can use the funds in the interim at their discretion, for example to reinvest in another property or invest elsewhere. That advantage will be taken away and they will need to pay over the tax to HMRC almost immediately.

“Individuals will need to prepare a CGT calculation within 30 days of the sale of the property, meaning they will need to have up-to-date records readily available.”

The consultation proposals do not include companies. Therefore, a company selling a residential property will continue to pay corporation tax as normal, which could be up to 9 months after the financial year end of the company.

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