Capital gains tax payment rules warning to residential property owners

The Association of Taxation Technicians (ATT) has issued a warning to residential property owners, about the need to carefully consider the timing of any sale or gift of their property in future.

The warning comes as from 6 April 2020, it is likely that UK owners of residential property who experience a gain on disposal that is subject to tax, will be required to report the gain and make a payment of the tax due, within 30 days of the transaction being completed.

Michael Steed, Co-Chair of the ATT Technical Steering Group, said: “Previously the tax would have been calculated and paid after the end of the tax year as part of the normal self-assessment process. This new 30-day window is a significant timing change, as acknowledged by the Financial Secretary to the Treasury, Mel Stride.”

There is now a concern from the ATT that the legislation, which is currently in the process of going through Parliament, could result in some UK residents making excessive payments, which cannot be reclaimed until the completion of their self-assessment tax return many months later.

Problems are expected to arise when the individual makes a capital loss on another non-residential asset within the same tax year. If the loss occurs before the residential property is disposed of it can be offset to reduce payment, however, if the loss occurs after the completion of the property disposal then the two cannot be offset, meaning individuals will then be required to wait until they have completed their tax returns to claim back any overpayment.

Mr Steed added: “If a residential property owner is expecting to sell other assets at a loss in the same tax year as they dispose of a residential property, they will from 6 April 2020 need to think carefully about the timing of the transactions to avoid the negative cash flow consequences of having to wait to recover any overpaid tax.

“An individual might not complete their tax return until some months after the end of the tax year, so the excessive payment could potentially be held by HMRC for up to 21 months.”