Through a Time Window, Darkly
In April 2020, new rules will be taking effect regarding Capital Gains Tax (CGT). The policy change from HMRC aims ‘to improve collection of CGT by reducing error and increasing compliance; customers will have 30 days following property disposal to file their return and make an advance payment towards their tax bill’.
Currently, these payments are made as part of a self-assessment tax return and, as such, up to 22 months can elapse between the disposal and the payment. Reducing this time window to 30 days represents a significant change for the process and places increased pressure on customers.
Types of Customer
HMRC are therefore keen to ensure that anyone likely to be affected is well informed beforehand and have commissioned research into communicating the changes effectively. They are keen to avoid repeats of recent cases in which late payment penalties have been overturned at tribunal because the reporting regime had not been sufficiently publicised.
The research identifies two distinct types of customer. “One-off” customers were likely to become liable for CGT by selling off a property which had been recently inherited or previously rented out. “Multiple disposal” customers were likely to be landlords owning multiple properties or individuals who derived a significant portion of their income from property sales.
The HMRC report indicates that the first group were least likely to be informed about CGT, many of whom did not make regular use of formal support. However, when confronted with the new policy both groups described the information as ‘difficult to understand due to long paragraphs containing financial terminology and unfamiliar terms related to CGT’. Neither audience felt confident that they had fully understood the policy changes and felt they would need to refer to a professional for clarification.
Even professional intermediaries were left with questions regarding payments and timings after viewing the policy document, required multiple readings in order to summarise the idea, and agreed that the language needed to be simplified before being communicated to the wider public.
Though the message that payments will need to be filed within 30 days was the key takeaway for customers in all groups, there remained uncertainty surrounding the detail. Even experienced customers incorrectly inferred the use of the phrase ‘payment on the account’ to mean part-payment rather than in full, or that their own tax calculations would be submitted to and confirmed by HMRC in due course.
Home and Abroad
Non-UK residents have a head start on comprehending these changes as, for them, the 30 day time window for CGT disposal payment has been in place since 2015 for the sale of residential property. However, the rules are set to expand to the sale of non-residential land and property in the UK by non-resident individuals, trusts and companies and the existing option to pay through self-assessment instead of within 30 days will be removed in 2020.
For all the groups concerned as of 2020, when a CGT liability arises a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and a payment on account of the full calculated CGT liability will be payable within the same 30 day window.
All groups surveyed believed this should be communicated as clearly and quickly as possible, as the policy change could have a significant impact on decision making, strategic and financial planning regarding property disposal.
If you have any questions or concerns regarding tax issues, contact our team of tax experts.