Skip to content

Capital Gains Tax Residential Property Returns – Common Administrative Pitfalls

Capital Gains Tax Residential Property Returns – Common Administrative Pitfalls

As of 6 April 2020, Capital Gains Tax (CGT) that arises from the sale of a residential property in the UK must be reported through HMRC’s online service within 60 days of the completion date of the sale, with any CGT liability also being due for payment within this 60 day period. We surmise below just a few of the reasons that individuals require our help in completing these disclosures and submitting them to HM Revenue and Customs.

What issues do individuals encounter when declaring/paying their CGT?

Now that the current system has been in operation for 4 years, there are a few areas that we see giving rise to issues when individuals are completing the required returns themselves. These are, among other things:

  • Issues in accessing an individuals online account/generating a Capital Gains Tax on UK property account number
  • The delays experienced when filing paper returns;
  • The assessment to CGT on the disposal of mixed-use properties;

Generating a Capital Gains Tax on UK property account number

Whether an individual is completing their own Residential Property return, or has engaged an accountant to do so on their behalf, the individual is themselves required to notify HMRC that the disposal has been made, and that a return requires filing. Upon doing so, a Capital Gains Tax on UK property account number is generated, which will be required by any accountant completing the return on an individual’s behalf.

In order to do so, all individuals holding an interest in the property that has been sold will need to register with HMRC for a Government Gateway ID and password, and then log in to their online account to set up a set up a Capital Gains Tax on UK property account.

Whilst in theory this is a relatively straight-forward process, individuals can have issues with the required electronic verification used to set up an online account with HMRC, or may have already registered for such an account and no longer have access to the login credentials. Given the time that rectifying such issues can take in practice, it is therefore worthwhile that any individual negotiating the sale of a property ensures that they have been able to setup/access their online account in advance of the completion of the sale. This avoids complications in this initial stage, and reduces the risk of late filing penalties and late payment interest being charged.

Misallocation of Capital Gains Tax paid

It is also imperative that an individual makes payment of any Capital Gains Tax due to the correct account and uses the correct reference. Upon submission of the electronic return to HMRC, a unique payment reference is generated, that is specific to the reported sale, and does not relate to an individuals Unique Tax Reference (UTR), which is the basis of the reference used for paying tax through self assessment. Details of the relevant account for making payment can be found by following the link provided when submission of the return is confirmed on the HMRC portal.

The delays of completing a paper Residential Property return

If an individual does not have access to an online account, it is possible for them to submit a paper copy of the return to HMRC to process. However, as the payment reference is only generated at the point of acceptance of the return, no payment reference is generated when an online form is submitted. As such, an individual has to wait until HMRC have processed the paper copy of the return before a payment reference is generated and sent to them. From recent experience, this can take upwards of a year for the return to be processed and the payment demand issued to the taxpayer, which can mean that the taxpayer cannot invest the proceeds of the sale until the CGT has been settled.

Dependent upon the date of the sale of the property, this can also mean that the CGT is being declared on the individuals self assessment tax return prior to the tax actually having being paid, which can lead to confusion with HMRC, and on occasion the duplication of any CGT demand through both the CGT property account and the self assessment tax return.

Mixed-use properties

In such circumstances as a property consisting of both a commercial and residential aspect, such as a shopfront with a flat overhead, is sold, the residential aspect of the sale must still be reported through a Capital Gains Tax Residential Property return, which can be overlooked by the seller. It is therefore necessary to apportion the relevant element of the proceeds and costs that relate to the residential aspect of the property, and declare such gains to HMRC within the 60 day reporting period.

What should I do next?

If you are considering selling a residential property and wish to discuss this with us, please contact your Tax Advisor, or if you are a prospective client, our Tax Advisor, Ben Haslam.