HM Insights

Capital Gains Tax on residential property sales - payment deadline change causes cash flow concerns

HMRC have now confirmed their intention to extend the 30-day payment deadline for Capital Gains Tax (CGT) on residential property sales to UK residents with effect from April 2020.

Currently the deadline only applies to overseas residents disposing of UK residential property, with that regime requiring an online return submission, and a tax payment where appropriate, to be made within 30 days of settlement.

This will now extend to include all disposals, sales, gifts and transfers into or out of trusts by UK resident individuals and Trustees, although a return should not be required where the main residence relief exemption applies.

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Cash flow concerns

The rule change will as a result mainly affect those disposing of second homes or rental properties, but cash flow concerns have been raised by many, as the tax payable will only relate to that one stand-alone transaction, meaning that valuable losses already incurred by the taxpayer, cannot be applied to reduce the payment due.

Losses can only be claimed via the Self-Assessment Tax Return which could result in HMRC sitting with overpaid tax for several months, and the taxpayer out of pocket.

To illustrate, a property sold in April 2020 falls into 2020/21 fiscal year. The Self-Assessment Tax Return cannot be submitted until April 2021 at the earliest, 12 months after the sale, but the deadline for submitting that return is in fact a huge 21 months after the initial transaction, being 31st January 2022. So HMRC could be sitting with taxpayers cash for somewhere between 11 and 20 months depending on how quickly they can get their details together to allow their Tax Return to be submitted.

The rule change is still more than a year away so there is hope that HMRC may seek to amend the loss position to ensure a fair application of the new rules.

Get in touch

If you require any advice in relation to CGT issues with your tax returns, please get in touch with our team.