Meg Saksida explains the rules behind the headlines regarding the extension of the time limit to pay capital gains tax on UK residential property sales.
From April 2020, it became obligatory for reportable gains on residential properties sold in the UK to be declared and any tax to be paid within 30 days of completion.
However, the process for reporting and payment is not quick or easy. For some taxpayers, this involves registering with HMRC for the first time, requiring a government gateway code and an associated password to be received through the post. For those already registered with HMRC, a new ‘capital gains tax on UK property account’ (CGTUKPA) needs to be opened in order to pay the tax and make the return.
Unfortunately, existing agents of the taxpayers are not able to access this new CGTUKPA on behalf of their clients, even if they have a current authority to act (through a form 64-8). This is because a special authority is required for access. It is necessary for the taxpayer to have first set up and accessed the system and then authorised their agent to act. The agent must set up their own ‘agent services account’. Next, through a ‘digital handshake,’ the agent is finally able to access the CGTUKPA of their client.
As one can imagine, all this takes time, and a 30-day deadline makes this process a challenge. Non-UK resident taxpayers had even more tribulations, including trying to receive government gateway codes in foreign lands in good time, or worse, when they did not have a National Insurance number.
Other problems were also encountered, such as how to estimate whether to use the lower or the higher capital gains tax (CGT) rate, as these are based on the taxpayer's capacity for the basic rate income tax band (which may not be known until the end of the tax year), and how to deal with estates where assets were sold by PRs.
The 60-day deadline
These problems were widespread, and the issues with the practicality of the 30-day deadline were reported to HMRC early in 2021 by representatives of several accounting and tax professional bodies in the form of the ‘issues overview group’ (IOG).
Happily, the Autumn budget announced an immediate change to the tight deadline, which doubled it to 60 days for all completion dates after that date (i.e., 27 October 2021).
Mixed-use properties
A mixed-use property is a location which is both residential and non-residential. For example, a flat above a shop would be one building with both residential and non-residential elements in it. There was a lack of clarity before the change in legislation in the Autumn budget for how UK residents selling mixed use properties should report these. As part of the reporting changes made in the budget, clarification of how gains on such properties should be treated was also given.
This clarification stated that if a mixed-use property was sold, again arose and CGT was due on the gain; only the tax due on the part apportioned to the residential part of the gain would be due to be reported and paid within 60 days. The balance, being the gain on the non-residential part, is required to be reported and paid by 31 January after the end of the tax year in which the gain arose.
Practical tip
Notwithstanding the fact that the deadline has risen to 60 days from 30 days, it is still good practice to set up a CGTUKPA and ensure your agent is authorised to access this account in advance of the property being sold, so the pressure is off having to do this and report and pay in a short period of time.
