After the headline news of Universal Credit changes, the National Living Wage uplift and details of all the Chancellor’s spending plans, it was easy to miss a small piece of good news in relation to the UK Property Reporting Service.
Hidden in the detail of the Autumn Budget and Spending Review – and following a recommendation from the Office of Tax Simplification (OTS) – the Chancellor has provided an extension to the so-called ‘30-day’ reporting rules by doubling the time period to 60 days.
Since April 6, 2020, UK residents have been required to calculate, report and pay any Capital Gains Tax (CGT) liabilities on the disposal of UK residential property within 30 days of completion via the UK Property Reporting Service. The introduction of such ‘in-year’ reporting for UK residents was a major change to the nature and timing of CGT and it is fair to say that it has not gone smoothly.
Filing in time
For many agents and taxpayers, submitting the necessary return within the original 30-day window has proved a challenge. Firstly, not everyone affected is aware of the requirements so they often come to their agent late already, or with very little time left on the clock. Others have found accessing the online system for reporting difficult, and all this is on top of the usual challenges of gathering all the necessary information required for a CGT computation.
To prove the point, as we have previously reported, in the last six months of 2020 around £1.3m of penalties were issued for late-filed 30-day returns.
Many concerns were raised with the OTS when they were gathering evidence for their second report into CGT aimed at simplifying practical, technical and administrative issues. The report includes HMRC figures suggesting that in the first nine months of operation, around one third of returns missed the 30-day deadline – and that figure only includes those who were aware of the new measures and actually filed a return in that period.
Once we get to the end of January 2022, and the position for the whole of the 2020-21 tax year is clear, we may find that an even larger number of property returns should have been filed.
Thankfully, the government has taken on board the OTS’ recommendation that more time is needed to prepare and submit these reports and, for disposals that complete on or after Budget Day (27 October 2021), the reporting (and payment) window has been extended from 30 to 60 days. The original 30-day deadline will remain for relevant property disposals completed before Budget Day.
While the ATT welcomes the extended deadline, we would still like to see the government do more to alert those affected, including landlords, second homeowners and divorcing couples to these obligations. As an alternative to extending the deadline, the OTS had suggested that the government could do more to raise awareness by providing property professionals such as estate agents, conveyancers or auctioneers with an HMRC-approved standard information pack. We think it would have been good to see something along these lines in addition to the extended window.
The time period has also been extended for similar reporting rules which apply to non-UK residents. Since April 2019, non-UK residents have been required to report all disposals of UK land (including indirect holdings in property-rich companies) within 30 days of completion – whether or not any UK CGT is payable.
From October 27, 2021, they will also get 60 days to report (and pay) any CGT that is due.
Another major concern – also highlighted by the OTS – which is now being addressed is the lack of guidance on the service for users.
Clear guidance is essential, especially given the high numbers of individuals who appear to be tackling these reports without the help of an agent. The OTS suggest that around 40 percent of returns are filed by agents, which implies around 60 percent of returns are being filed by taxpayers themselves.
Fortunately, HMRC has started to tackle this problem and have been working with the ATT and other bodies over recent months on some vastly expanded and improved guidance which should cover both the technical aspects of how to interpret the legislation and some of the practicalities of the UK Property Reporting Service itself.
The new guidance, once published, should help both agents and taxpayers understand their obligations more clearly.
In the meantime, until this guidance is finalised, HMRC has provided an FAQ covering some key points about the service, and details of a workaround when the CGT calculated via self-assessment is less than that paid in-year on a property return.
HMRC shared these documents with the professional bodies earlier this year following discussions highlighting our main concerns about the service.
Based on the feedback we receive, there are probably plenty of advisers who would have preferred in-year reporting and payment to be scrapped altogether – not least as the UK Property Reporting Service is entirely separate from the existing self-assessment system and the two do not sit together well.
Alas, given the cash flow benefits to the Exchequer of in-year reporting, such a move is unlikely, and it is very much a case now of making the best of it.