Under current rules UK resident individuals can have up to 22 months to pay tax due on gains arising on the disposal of chargeable assets, during which time they would have use of the full proceeds for investment or other purposes.
However, under proposals put forward by HMRC, the way CGT is collected on disposals of residential property will change from April 2020 with the introduction of a new 30-day reporting requirement and payments on account.
If adopted, as is almost certain, the new system will mean that individuals will need to submit a new ‘payment on account’ return, and calculate and pay the CGT due within 30 days of completion of each residential property disposal. The disposal will also still need to be disclosed on the individual's self assessment return at the end of the tax year.
Apart from the obvious additional compliance burden of having to complete two returns in respect of the same property, where an individual disposes of several properties during the course of a tax year, the additional administration involved may become burdensome, with a return and calculation required on each occasion within the 30-day timeframe.
Whilst the sale details will be readily to hand, the historical details of previous transactions, relevant valuations, acquisition costs and improvements will also need to be easily obtainable in order to meet the new deadlines, meaning that the new reporting requirement could prove to be an administrative nightmare for some taxpayers.
From a cashflow point of view, individuals will also need to ensure they have the funds available to make the payment within the 30 days. This might be particularly troublesome when a gift of the property is involved rather than a cash sale.
There will inevitably be a raft of legislation needed to determine how the payment on account should be calculated, including how to deal with other gains arising, losses and reliefs, and the allocation of the annual exemption. It seems that tax simplification may be a thing of the past as far as CGT is concerned.
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