How to avoid late filing penalties on capital gains tax
You may already know that capital gains tax (CGT) gets reported on your self-assessment tax return for the year. The filing deadline and due date for payment is 31 January following the end of the tax year. So, with the deadline following standard self-assessment procedures, why are so many non-residents being hit with late filing penalties?
The reason is non-residents, selling property in the UK, have to file a non-resident capital gains tax (NRCGT) return within 30 days of the conveyance of a UK residential property. The shorter deadline applies regardless of whether any CGT is payable and came into force from April 2015.
Here’s an example (Rachel McGreevy v HMRC TC06109):
Rachel McGreevy completed the sale of her property on 7 July 2015, but did not file her CGT return until 7 August 2016. If she’d been a UK resident, the disposal would have fallen within the 2015/16 tax year and would need to be reported by 31 January 2017.
However, Mrs McGreevy was resident in Australia. This meant that the NRCGT return needed to be filed by 6 August 2015 (30 days after the sale completed). In fact, the return was submitted over one year late.
There was no tax to pay on the disposal but that didn’t stop HMRC from charging penalties of £1,600.
Mrs McGreevy appealed the penalties and had them mitigated on the basis that the rule changes were not widely documented and that she had no idea the new rules were in place. Her appeal was successful and the penalties cancelled.
Moving forward another year, in two recent tax cases (Hesketh and Welland), the penalties were upheld. It was deemed that rules had been in place for long enough that ignorance of the law was not an excuse.
From April 2019, the rules will extend to non-residential (commercial) property sales. Gains on commercial property and indirect interests in all types of property will be rebased to April 2019, so that only the element of gain accruing from that date is taxable.
A consultation is currently underway with HMRC looking to apply the above filing obligations to all capital gains transactions for both residents and non-residents in future years.
Many people, including accountants and solicitors, are still unaware of this shorter deadline and, since penalties are starting to be upheld, non-residents may need to get professional advice to avoid this pitfall.
If you or someone you know is a non-resident and is looking to sell a UK property then our specialist tax team would be pleased to help. Call 0330 024 0888 and ask for either Alex Coghill or Andy Wilkinson.
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