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This publication is available at https://www.gov.uk/government/publications/capital-gains-tax-and-corporation-tax-on-uk-property-gains/capital-gains-tax-payment-window-for-residential-property-gains
Who is likely to be affected
Individuals, trustees and personal representatives of deceased persons who sell or otherwise dispose of residential property.
General description of the measure
The measure introduces a requirement for UK residents to make a payment on account of Capital Gains Tax (CGT) following the completion of a residential property disposal. It also expands an existing similar requirement for non-residents (including UK residents that make disposals in the overseas part of a split tax year).
Capital gains that arise when a second home or a rental property is sold or otherwise disposed of can be significant. The government thinks it is right that tax is paid sooner in respect of gains from residential property to reduce error and increase compliance.
Background to the measure
The measure was announced at Autumn Statement 2015 and Budget 2017 announced deferral of its introduction until April 2020. A technical consultation was conducted between 11 April 2018 and 6 June 2018.
A summary of responses was published alongside draft legislation for consultation on 6 July 2018.
For UK residents, the measure will have effect for disposals made on or after 6 April 2020. For non-UK residents changes have effect for disposals on or after 6 April 2019 and 6 April 2020.
The current law for declaring and making payments of CGT is contained in the Taxes Management Act (TMA) 1970. Sections 7 to 9C contain the main provisions for the making of self-assessment returns of income and gains. Section 59B sets out when any CGT due for a year of assessment is payable. In most cases it is 31 January following the end of the year.
For non-residents, sections 12ZA to 12ZN set out when a return reporting a disposal of a UK residential property must be made to HMRC (whether or not a gain is realised) and section 59AA makes provision on an associated requirement to make a payment on account of CGT liabilities. Where required, the return and payment is due within 30 days of the disposal being completed.
Legislation will be introduced in Finance Bill 2018-19 to replace sections 12ZA to 12ZN and section 59AA of TMA 1970 with a new Schedule that will form a part of the subsequent Finance Act.
The Schedule, which will apply to both residents and non-residents, sets out the circumstances when a return of a residential property disposal is required to be delivered to HMRC and how to calculate the amount payable on account of the person’s liability to CGT for the tax year in which the disposal takes place.
The general rule will be that a return in respect of the disposal must be delivered to HMRC within a ‘payment window’ of 30 days following the completion of the disposal, and a payment on account made at the same time. The self-assessed calculation of the amount payable on account takes into consideration unused losses and the person’s annual exempt amount. The rate of tax for individuals is determined after making a reasonable estimate of the amount of taxable income for the year.
Gains on disposals reported on the new return can be ignored when determining whether to register for self-assessment. Enquiries into the return will be able to be made separately from any self-assessment return that may be due.
For disposals by UK residents, the new reporting and payment requirements will not apply where the gain on the disposal (or the total gain where more than one residential property disposal is made in the year of assessment) is not chargeable to CGT (for example where the gains are covered by private residence relief, unused losses or the annual exempt amount), arise from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or arise to a person taxed on the remittance basis.
For non-residents, the reporting requirement is expanded from 6 April 2019 to include all companies. However, an exception from making a payment on account for those that make self-assessment returns will cease for disposals on or after 6 April 2020 in line with the introduction of payment on account for UK residents.
The Schedule also contains provisions relating to disposals by non-residents of UK non-residential property and indirect disposals, which have effect from 6 April 2019. Further information on this is given in the Tax Information and Impact Note ‘Capital Gains Tax and Corporation Tax: Taxing gains made by non-residents on UK immovable property’.
Summary of impacts
Exchequer impact (£m)
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These figures are set out in Table 2.1 of Autumn Budget 2017 as ‘Capital Gains Tax payment window reduction: delay to April 2020’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
|2017 to 2018||2018 to 2019||2019 to 2020||2020 to 2021||2021 to 2022||2022 to 2023|
These figures are set out in Table 2.2 of Autumn Budget 2017 as ‘Capital Gains Tax: reduce payment window for residential property’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2015.
The overall Exchequer impact is a summation of the 2 sets of figures presented above.
This measure is not expected to have a significant macroeconomic impacts.
The measure includes a behavioural effect to account for those who continue to pay on the premeasure timescales due to error or lack of awareness. It also includes a small compliance benefit.
Impact on individuals, households and families
Individuals and households will be impacted if they dispose of residential property on which chargeable gains arise, for example a second home. Costs include determining whether a payment on account is due and, where applicable, preparing and submitting a return of the disposal and the amount payable. It is expected that these costs will be negligible.
Where losses arise after the gain has been accounted for, this may reduce the amount of tax due. Losses may be claimable immediately when a residential property is disposed of for a loss or as part of the self-assessment reconciliation process after the end of the tax year. Repayment interest will be payable on any amount of tax overpaid and is set at the Bank of England base rate minus 1% with a ‘floor’ of 0.5%.
The measure is not expected to impact on family formation, stability or breakdown.
Older persons are expected to be impacted more than young persons as they are more likely to dispose of second homes or residential rental property.
It is not anticipated that there will be impacts on other groups with protected characteristics.
Impact on business including civil society organisations
This measure will impact on landlords chargeable to CGT on the sale of residential property.
There may be a cash flow impact on landlords who now have to account for any gains within the new time limit as opposed to at the end of the tax year. The impact on administrative burdens is expected to be negligible. One-off costs include familiarisation with the new requirements and may also include setting up new systems and/or processes. On-going costs include preparing and submitting the return and paying the tax within the new time limit. Estate agents, conveyancers and accountants may also incur a one-off cost of familiarisation with the new rules, in order to be able to advise their clients.
Companies chargeable to corporation tax on gains are not affected (as explained in the tax information and impact note ‘Capital gains tax and corporation tax: taxing gains made by non-residents on UK immovable property’).
Operational impact (£m) (HMRC or other)
Initial indications show there will be HMRC IT costs for these changes, which are currently estimated at approximately £3 million plus any associated resource implications. These costs may change depending on the final solution chosen for delivery.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected by tax returns and feedback from stakeholder groups.
If you have any questions about this change, contact Alan McGuinness on Telephone: 03000 585256 or Email: email@example.com.