The payment and administration of capital gains tax (CGT) is changing from April 2020.
Currently, payment of CGT is due at the same time as the balancing liability of income tax for a tax year, and the disposal is reporting on the tax return at the same time, that is to say by 31 January following the tax year of disposal.
From 6 April 2020, where CGT is due on residential property disposals (not other kinds of disposals such as share sales), a return will need to be filed, and the ‘notional CGT’ due must be paid, both within 30 days of the date of completion. That is a huge change to the timing goalposts and it may catch many taxpayers unaware.
There is a technical definition of residential property but essentially it is what it says on the tin – a place you can live in. Where a property has both residential and commercial parts, the gain arising must be apportioned on a just and reasonable basis. Only the part relating to the residential element will be subject to the new reporting and payment requirements.
However, no return is required (and no CGT is due) where a gain is completely covered by a relief (such as private residence relief), or the annual exemption, or a brought forward capital loss.
‘Notional CGT’ is in inverted commas because at this point (given the payment deadline of 30 days means that a person may well not have done their tax return for the full year and may not know what their total income is) it is the best estimate of the CGT due. The taxpayer will therefore need to estimate his/her income for the year so that s/he can assess if the gain falls into his/her basic rate or higher rate tax band and apply the correct CGT rate of 18% or 28%. In determining which tax rate applies for the ‘notional CGT’ payment, they need to include gains on other residential property sales but NOT gains on other types of assets (I know, getting complex isn’t it!)
If the taxpayer has sold another residential property at a loss in the year and/or if s/he has a capital loss brought forward, these losses can be brought into the estimated calculation. But the taxpayer is not allowed to take account of in-year losses arising on other types of asset. This means that HMRC will get CGT out of the taxpayer at an early date that isn’t actually due, so that they will just have to refund it when the taxpayer submits their self assessment tax return (which will claim the losses on the other types of asset), but at a much later date, so is an unashamed way for HMRC to obtain a cash flow advantage at the detriment of the taxpayer’s cash flow.
Disposal of all types of asset including residential property will continue to be reported on the self assessment tax return, by the normal 31 January filing date, and at that point the actual CGT bill will be calculated, with the notional CGT already paid being given as a credit against the final CGT bill, and a top up CGT payment or a CGT repayment then becoming due.
