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One-fifth of property sellers miss CGT payment deadline

One-fifth of buy-to-let investors and second homeowners who incurred capital gains tax from property sales in the last tax year failed to pay their tax bill on time, despite an extension to the reporting deadline.

New rules were introduced in April 2020 requiring those with taxable gains on residential property to report and pay CGT within 30 days. Under the previous system, they had up to 22 months to do so.

The deadline was extended to 60 days in October 2021 following criticism that the turnround time was too tight and that awareness of the new rules was limited.

A freedom of information request submitted to HM Revenue & Customs by the Financial Times showed that 26,500 returns missed the filing deadline in the 2021-22 tax year, up from 25,300 people in the first year in which the new reporting requirement was introduced.

Bill Dodwell, tax director at the Office of Tax Simplification, said that while he was pleased the government had extended the filing period there was a continuing problem with awareness. “We would like to see HMRC do more to help taxpayers, including potentially involving conveyancers in passing on HMRC information.”

HMRC estimates that 129,000 taxpayers paid £1.7bn of CGT on residential property in the 2021-22 tax year, a 50 per cent rise on the previous year both for taxpayer numbers and the amount paid, as coronavirus restrictions eased and property sales boomed.

Property owners who incur CGT have 60 days to report the sale to HMRC, or risk being fined. Penalties depend on how late the return is filed. For delays of up to six months, you will get a penalty of £100.

For delays of six months to a year, a further penalty of £300 or 5 per cent of any tax due is charged, whichever is greater. The same charge is applied again after 12 months if the reports have not been filed and the payments made.

While HMRC declined to disclose the total number of fines paid by those who filed late, it said nearly 4,000 appeals were processed in response to late payment penalties, a huge jump from about 600 the previous year.

This can partly be attributed to the fact that no charges were applied during the first three months of the reporting period in 2020. But experts said a lack of awareness was also likely to be a factor.

“To successfully appeal a late-filing penalty, you need to demonstrate to HMRC that you had a reasonable excuse for being late and HMRC does not normally accept ignorance of the law as a reasonable excuse,” said Helen Thornley, technical officer at the Association of Taxation Technicians, a professional body.

HMRC said it had helped customers adapt to the service with a programme of support before its introduction. This included “communications to customers and stakeholders, reaching out to industry press, engaging agents, hosting webinars for landlords, and social media.”

Senga Prior, tax senior manager at Johnston Carmichael, a firm of chartered accountants and business advisers, said HMRC’s efficiency in dealing with appeals had been “variable”.

“In the majority of our cases it has taken a few months to get a response to the appeal,” Prior said. “This could be improved in our opinion if HMRC had an online appeal process, which currently there isn’t.”

Thornley pointed to a glitch in the implementation of the rules. Individuals who filed their property returns late had received fines, but those who did not file a property return for 2020-21 and simply reported the disposal on their self-assessment return by January 31 2022 were not initially penalised.

“We understand that HMRC is going through 2020-21 self-assessment returns containing property disposals to pick out cases where the property return was omitted and potentially issue penalties,” Thornley said.

“If you are in this position, HMRC’s advice is that any missing property returns should be filed on paper now — with a note to explain that the CGT has already been paid via self-assessment,” she added.

This article has been amended to correct the figure given for capital gains tax on residential property in 2021-22.


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