The Association of Taxation Technicians (ATT) is warning owners of residential property1 in the UK that from 6 April 2020 they will have to think carefully about the timing of any sale or gift of their property. This is because from that date, it is likely that UK resident2 owners of UK residential property who realise a gain on disposal that is subject to tax, will need to report the gain and make a payment on account of the tax due within 30 days of the completion of the transaction.
The ATT is concerned that the legislation currently progressing through Parliament could result in some UK residents making an excessive payment on account which cannot be reclaimed until the completion of their self-assessment return many months later. The problem arises when the individual makes a capital loss on another, non-residential asset, in the same tax year. If the loss occurs before the disposal of the residential property, it can be offset to reduce the payment on account required. If the loss occurs after the completion of the residential property disposal then the two cannot be offset at that point, and the individual must wait until they have completed their tax return to reclaim any overpayment. Tax returns are typically completed some months after the end of the tax year.
The relevant clauses in Finance (No.3) Bill were debated today in the 3rd sitting of the Public Bill Committee (PBC).3 The clause passed through the PBC without amendment.
Michael Steed, Co-Chair of the ATT’s Technical Steering Group, said:
“From 6 April 2020, a UK resident individual who sells or gifts UK residential property and makes a taxable gain must calculate, report, and pay any capital gains tax due within 30 days of completing the transaction. 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 today by the Financial Secretary to the Treasury, Mel Stride.”
The ATT is concerned that people who, in the same tax year, also sell a non-residential asset – such as shares or commercial property – and realise a capital loss on that disposal after they have sold their residential property at a gain, could now pay too much tax upfront. This is because when calculating the gain on the residential property, they can only take into account losses that have occurred prior to completion. They cannot adjust the tax due for subsequent losses until after the end of the tax year.4 An individual might not complete their tax return until some months after the end of the tax year, so the excessive payment on account could potentially be held by HMRC for up to 21 months.
Michael Steed said:
“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.”
Notes for editors
- The measure will apply to individuals, trustees and personal representatives who dispose of UK residential property. The measure will apply to disposals including sales, gifts or transfers in or out of trust. The measure only applies where a gain is realised and tax is due to be paid. If the gain is covered by a relief such as private residence relief so that no tax is payable then no report is required.
- Similar rules already apply to non-resident owners of UK residential property. These rules are also being amended by Finance (No.3) Bill with any changes taking effect a year earlier on 6 April 2019. From that date non-resident owners of any UK property - residential or commercial - will be required to report the disposal to HMRC (whether or not they make a gain) within 30 days unless specific no gain no loss provisions apply.
- The ATT’s submission to the Public Bill Committee is available on request. An audio recording of the Public Finance Committee debate can be found here. The ATT’s original submission on the draft Bill published in July 2018 can be found here. This made seven recommendations of which five were reflected in the updated version of Finance (No.3) Bill 2017-19 published on 7 November 2018. The new provisions for returns for disposals of UK land can be found in Schedule 2.
- Only subsequent losses on residential property can be taken into account. An individual who sells one residential property at a gain and then a second residential property at a loss can make a further report on the second disposal to recover some or all of the tax paid on the first disposal. An individual who sells a residential property at a gain, but then sells some farmland, say, at a loss in the same tax year cannot make a second report and must wait until they complete their tax return to reclaim any overpaid capital gains tax.