New UK proposals to speed up Capital Gains Tax (CGT) payments for residential property sales, by HM Revenue and Customs (HMRC) could have a negative impact on individuals, landlords and property investors, according to Nimesh Shah, partner at accounting, tax and advisory practice Blick Rothenberg.
The consultation document proposes changes to the way CGT is collected on the sale of a residential property, suggesting that a payment on account of CGT will need to be made to HMRC within 30 days of a residential property sale.
Mr Shah believes that the Government is keen to collect CGT as soon possible, but “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.”
He explained: “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.” This advantage will be taken away and “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.”
Under the current system, an individual selling a residential property and realising a capital gain would have to report the transaction on their self-assessment tax return for the year of the sale and pay the associated tax by 31 January following the end of the tax year, meaning the Government does not receive the tax for up to 22 months. However with the proposed changes the Government will collect CGT much more quicker.
Mr Shah added: “CGT can also be payable when someone gives away a property (or a share in a property) and a capital gain arises.” CGT will still need to be paid to HMRC within the 30 day period and “therefore, it will be important that the person has sufficient funds to pay the CGT" within the timeframe.
However the proposal does not apply to companies and a “company selling a residential property will continue to pay corporation tax under the rules for that system, which is normally nine months after the financial year end of the company,” Mr Shah continued.
Mr Shah also noted that the proposal applies to both UK and overseas residential properties, but “there is an exception where the gain is also taxed in the country where the property is located, which should be the case in the majority.”
“However, individuals will need to be mindful when selling an overseas residential property that they do not have a reporting requirement to HMRC, which if missed, could result in penalties and interest charges,” he added.
If the proposal is accepted, the new system will take effect from April 2020.
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