NEW 60 DAY CGT REGIME FOR RESIDENTIAL PROPERTY DISPOSALS - PART 2 OF 3 – PAYMENT OF CGT

As well as submitting a capital gains tax UK property disposals return within 60 days following the date of completion, the taxpayer should make a ‘payment on account’ in respect of the disposal. This payment deadline applies unless:

• the disposal results in a loss ― which means no tax is payable, or
• the amount due has not yet become payable as a result of a previous return.

FA 2019, Sch 2, Part 1, paras 6, 9

The ‘payment on account’ is a payment towards the capital gains tax liability due on the disposal. It is the best estimate of the tax due at that time, referred to the legislation as the ‘notionally chargeable’ amount.

The payment made can only be a best estimate because the correct amount of capital gains tax due may not be established until later, since all the information necessary to pay the correct amount may not be available at that time. For example, the taxpayer may realise losses later in the year which should be set against the gain or the taxable income (which is necessary to determine the rate of tax) and may be different than estimated.

The following areas must be considered when calculating the ‘payment on account’:

What is the best estimate?

The taxpayer should make the best estimate of the amount of the gain based on the information available at that time and must be as prudent as possible. If it is reasonable to expect that a provision in TCGA 1992 applies, such as principal private residence (PPR) relief, then the gain can be calculated on this basis. If a claim or election is required, it does not have to be submitted by the time the return is filed; however, it must be reasonable to expect that such a claim or election will be made.

Can losses (either current year or brought forward from an earlier tax year) be taken into account?

The short answer is yes – allowable capital losses can be utilised. Losses brought forward have been quantified already and can be set against the gain.

As far as current year losses are concerned, any allowable losses that arise prior to the date of completion can be set against the gain (whether or not the loss has yet been reported to HMRC). Current year losses that arise after the date of completion for the disposal of UK land cannot be taken into account in real time.

Is the capital gains tax annual exemption available?

Yes it is available. However, it can only be used once. As it should be used in the most tax efficient way, the utilisation of the AE may change at the end of the year and therefore subject to change.

What rate of capital gains is payable?

The rate of CGT depends on the tax year of disposal and the taxable income for that year. For the taxable income, the taxpayer needs to make a just and reasonable estimate in order to determine the amount of the basic rate band remaining (if any).