How to reclaim CGT paid on account is one of the most frequently asked questions to us by clients who have sold a UK residential property since April 2020 and paid an estimated CGT amount due to HMRC within 30 days of the sale.
There is a disconnect between self-assessment and the UK Property Reporting Service for paying CGT due within 30 days of UK residential property disposals.
Since April 2020, UK residents have been required to calculate, report and pay CGT on their UK residential property gains within 30 days of completion.
An early consultation described the new in-year payment as a payment ‘on account’ of CGT. Accordingly, most of the tax profession assumed that if a taxpayer overpaid during the year it would be straightforward to recover any difference through the usual self-assessment process.
Overpayments of CGT are quite likely, as total income for the year would only be estimated at the time of the property sale, and any capital losses realised post-completion can only be offset via self-assessment and in most cases, the taxpayer isn’t told how to reclaim CGT paid on account by HMRC.
In practice, it has turned out quite differently. While the SA108 pages have been updated to include details of gains on UK residential property reported in the year via the property service – and the tax charged – HMRC’s calculation will only offset the tax charged in that way against other CGT liabilities.
Once the CGT due has been reduced to nil, any excess CGT paid is not showing on calculations as repayable, nor will it be set against any income tax or Class 4 NIC liabilities.
The result is that a UK residential individual who has paid CGT of £7,000 on account during the year via a property return but has a final CGT liability of £5,000, will not be able to offset the excess of £2,000 against their income tax liability automatically, nor will the amount show as recoverable under self-assessment.
How to reclaim CGT paid on account: HMRC workaround
The only way to recover or offset the overpaid £2,000 in these circumstances is to follow a new workaround shared by HMRC at the end of June.
The workaround suggests either:
(a) amending the UK Property Return before submitting the self-assessment return for the year to recover the overpayment that way; or
(b) submitting the self-assessment return and then calling HMRC to ask for a manual transfer to be made of the payments showing on the property account against the self-assessment account so it can then be offset against the total self-assessment bill.
Estimates or amendments
Of the two options, tax agents who have managed to complete a digital handshake with their client and so can amend online are most likely to want to go for (a) to avoid calling the HMRC helpline. What the workaround does not pick up, is that there are times when it is not possible to amend the property return and you have to do option (b).
The legislation which governs the property reporting process is set out in FA 2019 Schedule 2. The ATT’s understanding of the legislation is that where any figures on the property return which were estimated or apportioned become known – or it becomes reasonable to make a different estimate of the rate of CGT applying to the disposal, or whether or not a relief will apply – then a new property return can be submitted containing the new facts to replace the originally submitted return.
However, amendments to the property return can only be made in specific circumstances. For example, the property return cannot be adjusted for a loss on shares made after the completion of the property disposal. That loss can only be offset via self-assessment – in which case, the agent or the taxpayer will need to ring HMRC to request a transfer of funds from one system to another under option (b).
HMRC is aware that a workaround that requires agents to call the helpline will be unpopular, but there is currently no way of automating this process. HMRC is working on more guidance around when it is possible to update estimates and make amendments, but in the meantime, agents should be careful about which route they pick.
How to reclaim CGT paid on account – Other matters
In May, the ATT provided a six-page briefing note of issues relating to the UK Property Reporting Service to HMRC and, together with the other professional bodies who make up the IOG (Issues Overview Group), a lot of agents asked for a number of concerns about the service to be escalated within HMRC for urgent attention.
Having received strong representations from IOG members, HMRC has acknowledged that much more work needs to be done on the service, and we are expecting further guidance on a number of other matters, including estate reporting, claiming business asset disposal relief (formerly entrepreneurs’ relief) and the supporting evidence required.
How to reclaim CGT paid on account – Guidance
The general lack of guidance on the new CGT service has been a concern to the ATT for some time. What there is on gov.uk is very limited, so much so that the ATT resorted to writing their own ‘user’s guide’ for their members.
Guidance on all aspects of the UK Property Reporting Service is crucial not just for agents but also for the general public. The OTS’s latest report on Capital Gains Tax reports that only around 40% of reports in the first few months have been submitted by agents – which suggests that a large number of returns are being submitted by unrepresented taxpayers.
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