The Chancellor announced in his Budget this week that the deadline for reporting capital gains tax ("CGT") on residential property disposals would be extended from 30 days to 60 days. This will apply to all disposals which complete on or after 27 October 2021.
Since April 2020, UK tax residents have been required to calculate, report and pay their CGT within 30 days of completion of the disposal (in addition to reporting the property disposal on their self-assessment tax returns).
The 30-day reporting process is fundamentally flawed and that isn't going to change by extending it to 60 days. The reporting service will still be completely standalone and not linked to self-assessment returns or references. Taxpayers will still have to estimate their expected income for the year and other anticipated disposals in order to calculate the amount of CGT (i.e. a corrective return may well have to be filed at a later date).
From experience, I have rarely been able to make the CGT payment for clients within 30 days of a disposal. This is because it is not possible to make the CGT payment until the 30-day return has been filed and HMRC have issued a unique reference number (which needs to be used when paying the tax).
So far HMRC have been understanding of a late CGT payment, recognising that it is their processes which cause the delay and prevent the CGT payment being made within the required deadline. However, with the deadline "generously" extended by a further 30 days, I imagine HMRC won't be quite so accepting of CGT payments which don't arrive within the 60-day time limit.
Here is a reminder of the penalties if the deadline is missed:
- up to 6 months, a penalty of £100
- more than 6 months, a further penalty of £300 or 5% of any tax due, whichever is greater
- more than 12 months, a further penalty of £300 or 5% of any tax due, whichever is greater
There were 13,113 late filing penalties issued to taxpayers who missed the 30-day window in the last six months of 2020. A late filing is more likely to be a consequence of the taxpayer being unaware of the reporting requirement, rather than it being too difficult to file within the deadline, and so we should expect these penalties to continue.
The extension to the property disposal time limit is presented as being helpful to taxpayers, but in reality I suspect we will continue to see many late filings and a tougher stance by HMRC on late payments.