Accelerated payment of capital gains tax on residential land

The Finance Act 2019 (section 14, schedule 2) introduced accelerated reporting and payment dates for CGT on UK land disposed of by non-residents starting in tax year 2019/20.

The change now applies to all disposals of UK residential land made on or after 6 April 2020 where tax is due, and it extends to disposals made by PRs and trustees. In August, HM Revenue & Customs’ (HMRC) Trusts and Estates Newsletter reminded PRs of this. The report and payment must be made within 30 days of completion. Penalties are charged for late reports and payments.

The date of disposal is fixed by reference to the date of unconditional exchange of contracts. So even if a sale is completed in the 2020/21 tax year, it is not subject to the new rules if unconditional exchange took place in the 2019/20 tax year.

Returns are not required for disposals where no tax is due, for example if the gain is within the annual exemption or covered by losses.

Procedure for reporting / paying capital gains tax

The government guidance on reporting and paying CGT on UK property is available online, but it is not particularly helpful for trustees or PRs. Much more detailed and helpful guidance is contained in:

• the Institute of Chartered Accountants in England and Wales’ (ICAEW) tax guide, Capital gains tax 30-day reporting (last updated: 15 October 2020)
• the Association of Tax Technicians’ user guide on the UK property reporting service (last updated: September 2020).

The reporting service is online and completely standalone. It does not use self-assessment returns or references. Existing agent authority is not recognised for the service.

The taxpayer needs to set up a CGT UK property account, regardless of whether they are reporting the gain themselves or appointing an agent to report the gain. They can create an account by using the green “start” button on the GOV.UK page, ‘Report and pay capital gains tax on UK property’.

Once the account has been set up, it is possible for the taxpayer to authorise an agent to report the gain on their behalf.

The ICAEW guide referred to above has a step-by-step guide to the process.

Trustees

Trustees who sell or dispose of a UK residential property held in a UK resident trust must ensure that any CGT liability due is reported and paid within 30 days of the completion of the disposal – in the same way as for UK resident individuals.

Registered trusts use their unique taxpayer reference (UTR) to access the online service.

Unregistered trusts will need to register with the Trust Registration Service (TRS) in advance of reporting the property disposal, so they can receive either a UTR or a Trust Registration Number as part of the CGT reporting process.

The problem here is timing, as, under current rules, trustees of an unregistered trust incurring a liability to pay income tax / CGT for the first time in 2020/21 would have until 5 October 2021 in which to register, as opposed to the 30 days required under the new system.

If the trustees are in the process of registering the trust and are waiting for a UTR, they can use the Temporary Reference Number to access the new service. Following the implementation of the 5th Anti-Money Laundering Directive, this will be less of a problem from March 2022, as there will be far fewer unregistered trusts due to the increased requirement for registration within 30 days of creation.

Personal representatives

In August 2020, the Trusts and Estates Newsletter said: “If a personal representative has disposed of UK residential property which gives rise to a CCT liability they must report and pay the tax due within 30 days of the completion date.

“This can be reported through the new CGT payment on property disposals service if this disposal occurs before they are ready to finalise the estate’s tax affairs.

“Or, if following the disposal of UK residential property which gives rise to a CGT liability, the personal representative is also ready to finalise the estate’s tax affairs in their entirety and pay any tax due, they can report and pay through the existing processes as set out on GOV.UK but still within the CGT payment on property disposals 30-day window.”

If PRs are not ready to finalise the estate’s tax affairs

The report will have to be made within 30 days of completion.

The GOV.UK guidance includes instructions on how unrepresented PRs can file a return. However, this process is not intended for use by agents who cannot currently use the online service on behalf of PRs.

A PR reporting on behalf of the estate should create a CGT UK property account in their own name, using their own credentials, and select the option to report on behalf of another person. Once logged into their account, the PR will be able to submit a CGT return on behalf of the estate, by providing personal details for the deceased which could (but do not have to) include the deceased’s UTR.

Note that this service allows a PR to file a return but does not provide online access to view the return or make payment online. ICAEW’s guide says that it understands that the return is in fact processed manually by HMRC, which then writes to the PR with payment instructions and grants an extended payment deadline.

The estate does not need to have registered as a complex estate (see below) via the TRS to be able to use the new CGT payment on property disposals procedure.

Where an agent is acting for an estate, they should request a paper return, called “form PPD CGT”. This is quite different from the ordinary self-assessment form so, to avoid confusion, it is important to refer to it by name. Given the very short time in which returns must be filed, it is advisable to request the paper returns as early as possible in the process, ideally in advance of the sale. ICAEW suggests that HMRC may ‘stop the clock’ (that is, pause the 30-day count from the completion date to the submission and payment deadline) during the period between receipt of a completed paper return and the issue of the payment demand so that the taxpayer is not penalised for any delay in HMRC processing the return but the exact details of how this works are unclear.

If PRs are ready to finalise tax affairs

This may be done without a separate report, by:

• completing a self-assessment return for the administration period if the estate meets the “complex estate” criteria
• using the “informal arrangements” if it does not meet the complex estate criteria.

When the estate pays the balance of CGT and income tax due, the PRs will need to quote any reference numbers relating to the earlier CGT payment to enable HMRC to link both payments together.

When is an estate complex?

Complex estates are those where:

• the probate value of the estate is more than £2.5 million
• income tax and/or CGT for the whole of the administration period exceeds £10,000
• the proceeds of assets sold by the PR in any one tax year exceed £500,000 for dates of death after 5 April 2016 (£250,000 for earlier deaths).

Reporting losses

Returns are only required when there is a chargeable gain. However in a webinar on disposal of UK properties, HMRC said that if a disposal results in a loss, the taxpayer can submit a voluntary report in order to recover tax paid on an earlier disposal.

Conclusion

The new procedure is yet another added complication for PRs and professionals acting for them.