How to reclaim Capital Gains Tax has been a popular query during this tax return season as taxpayers are now obliged to declare and submit a Capital Gains Tax return within 60 days of the sale of a Residential UK Property and some taxpayers have overpaid CGT using their initial calculations & this overpayment has come to light when they have prepared their tax returns.
When an individual is completing a Self Assessment return, then they should include details of the total gains or losses they have reported within the CGT on the UK Property Account, and the tax charges within the same account, within that Self Assessment return as well. This is to bring together the CGT gains, losses and tax charges on UK property with the other sources of income or gains/losses the individual has for the tax year.
Interactions between the Self-Assessment Process and the UK Property Account
Depending on an individual’s circumstances, the information within the CGT on UK Property Account may:
- Only relate to part of the total CGT due for the year e.g. the individual had other disposals of assets that were not UK property to report. In this case, any additional CGT due should be reported and paid as part of the Self Assessment process.
- Equal the total CGT due for the year e.g. the individual has only made UK property disposals in the year, all of which have been reported. In this case, once the figures within the CGT on UK Property Account are final, no further action is required in relation to CGT.
- Result in an ‘initial overpayment’ of CGT for the year. In this case, additional action may be required to ensure this is correctly accounted for – see sections 3.2.2-3 for further details.
An example of where Situation 3 might apply is if there are other asset disposals later in the tax year that affect the overall CGT liability or if there are changes in the amounts originally reported in the CGT on UK Property Account.
How to reclaim Capital Gains Tax Initial overpayments?
An ‘initial overpayment’ is where the total CGT due based on the total gains (after losses etc) in the Self Assessment return is lower than the total of any CGT charged by the CGT on UK Property Account returns (together with any CGT that might have been paid in a Real-Time Transaction return) filed in respect of that tax year.
In some cases, this ‘initial overpayment’ may have been paid by the individual to HMRC before they come to complete their Self Assessment return, and they may be due a partial or full repayment depending on circumstances.
In other cases, this ‘initial overpayment’ may have been charged but not yet paid e.g. where a return has been filed manually and no payment reference has yet been allocated. The sections below set out the actions to take depending on the circumstances.
Reporting for 2020/21 SA tax return where there is an ‘initial overpayment’
Where an individual has completed a Self Assessment return for the 2020/21 tax year which has resulted in an ‘initial overpayment’ of CGT for the year but has not actually yet paid that ‘initial overpayment’ amount as defined above to HMRC, they should contact HMRC by telephone on 0300 200 3300 to enable HMRC to make a manual adjustment and offset the amounts to ensure no late payment penalty is triggered.
If any further action is required HMRC will contact them to advise what that is. An example is as follows.
|TAXABLE CAPITAL GAINS||£62,700.00|
|Residential property and carried interest basic rate||£15,000.00||x18%||£2,700.00|
|Residential property and carried interest||£47,700.00||x28%||£13,356.00|
|Minus Tax on gains already paid||£21,000.00|
|Capital Gains Tax calculated as overpaid||£4,944.00|
|Income Tax, Capital Gains Tax, and Class 2 National Insurance contributions due||£6,795.87|
Using the output of the SA302 above, the individual would pay the difference between the Income Tax, CGT and Class 2 NICs due figure and the CGT calculated as overpaid figure – £6,795.87 – £4,944.00 = £1,851.87.
Suppose they choose to make payment in full of the Income Tax and other liabilities. In that case, that is generated by the calculation for the year – that is, pay the ‘initial overpayment’ as well as their actual overall tax liability – they should also then contact HMRC to request a repayment of that ‘initial overpayment’ of CGT. This will then be reviewed by HMRC.
In this case, using the example above, the individual would have made a payment in full of the Income Tax, CGT and Class 2 NICs figure (£6,795.87).
Once the Self Assessment return has been submitted, the individual should not attempt to amend their return within their CGT on UK Property Account for the corresponding tax year.
Reporting for 2021/22 SA tax return where there is an ‘initial overpayment’
The process of how to reclaim Capital Gains Tax has been eased slightly for the 2021/22 SA tax returns.
Any initial overpayment of CGT for 2021/22 will be automatically set off against any other tax due as calculated on the SA return for that tax year
HMRC should be contacted by telephone on 0300 200 3300 to enable any amount to be allocated to other tax charges or if appropriate a repayment made.
Once the Self Assessment return has been submitted, taxpayers should not attempt to amend their return within their CGT on UK Property Account for the corresponding tax year.
Manual returns – How to reclaim Capital Gains Tax?
If the CGT on the UK Property Account return has been filed manually i.e. a paper return has been submitted, but payment has not been possible because no payment reference number has been allocated as yet, then the Self Assessment return should be completed to reflect the CGT that will be charged via the CGT on UK Property Account, and a note made in box 54 of the SA108 to advise that the charge reference has not yet been allocated.
How can MCL Accountants help with your queries on how to reclaim Capital Gains tax?
Contact MCL Accountants on 01702 593 029 if you query how to reclaim Capital Gains tax or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.