According to the latest figures from HMRC, almost 20% of taxpayers failed to report gains from UK residential property and pay the capital gains tax (CGT) on time in 2021/22. The CGT 30-day reporting and payment system, introduced on 6 April 2020 (in the middle of the pandemic), received little publicity from HMRC. After coming into effect, the 30-day deadline was waived for three months and doubled to 60 days with effect from 27 October 2021 due to criticism that the turnaround time was inadequate and awareness of the new rules was limited, but it seems taxpayers who missed the deadline continued to grow.
How big is the problem?
The latest CGT statistics, as reported by HMRC, highlight that 137,000 UK property returns were submitted for residential property disposals in 2021/22, with estimates of 26,500 returns filed late (almost 20% of the total). It is estimated that 129,000 taxpayers paid £1.7bn of CGT on residential property in 2021/22, a 50% rise on the previous year, as coronavirus restrictions eased, and property sales increased. However, although the volume of disposals was somewhat suppressed by the pandemic, 28% of UK property returns were filed late in 2020/21.
Doubling the risk of a penalty
The new CGT reporting system increases the reporting effort of the taxpayer and their agent, but also increases the risk of a late filing penalty. The UK property reporting service and the self-assessment (SA) system are not connected; therefore, gains will need to be declared twice by taxpayers. Firstly, on the UK property return, and again on their SA tax return. The only instance a UK property return will not have to be submitted is in the rare circumstance that the property deal completes at the end of the tax year, and the SA tax return for that year is filed within 60 days of the completion date.
The penalties for a late UK property return are imposed in the following structure:
- One day late: £100
- Over three months late: £10 per day up to 90 days
- Over six months late: greater of £300 and 5% of tax due
- Over 12 months late: greater of £300 and 5% of tax due
Returns submitted over 12 months late will have a penalty liability of at least £1,600.
Action to be taken
HMRC is currently contacting taxpayers who failed to file a UK property return for a relevant disposal in 2020/21 and informing them of the requirement to submit a paper version of the UK property return to ensure late filing penalties stop accruing, with a note to explain that the CGT has already been paid via self-assessment (if this is the case). Paper forms (PPDCGT) can be obtained by contacting HMRC directly.
It is reported that nearly 4,000 appeals have been processed in relation to late payment penalties, a huge increase from 600 in the previous year. It will be interesting to see how HMRC responds.
Get in touch
If you would like to discuss the new CGT reporting system in more detail or need help submitting a UK property return, avoiding costly penalties, get in touch with Jonathan Cunningham by clicking the button below.