A fifth of property sellers miss the payment deadline for CGT

A fifth of buy-to-let investors and other home owners 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.

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

A Freedom of Information request sent 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 when 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 persistent problem with awareness. “We would like to see HMRC do more to help taxpayers, including potentially involving intermediaries in passing on HMRC information.”

HMRC estimated that 129,000 taxpayers paid £1.7m in CGT on residential property in the 2021-22 tax year, a 50 per cent increase on the previous year in both the number of taxpayers and the amount paid, as coronavirus restrictions eased and property sales increased.

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 submitted. For delays of up to six months you will be fined £100.

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

While HMRC declined to reveal the total number of penalties paid by late filers, it said almost 4,000 appeals were dealt with in response to late payment penalties, a big jump from around 600 the previous year.

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

“To successfully appeal a late filing penalty, you must 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 support program before it was introduced. This included “communication to clients and stakeholders, reaching out to industry press, engaging agents, hosting webinars for landlords and social media.”

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

“In most of our cases it has taken a few months to get a response to the appeal,” Prior said. “This could be improved in our view if HMRC had an online appeals process, which it does not currently have.”

Thornley pointed to a flaw in the implementation of the rules. People who submitted property declarations late had been fined, but those who did not submit property declarations for 2020-21 and only reported the disposal on the self-assessment report by 31 January 2022 were initially not penalised.

“We understand that HMRC is reviewing 2020-21 self-assessment reports containing property disposals to pick out cases where the property return was omitted and penalties potentially issued,” 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 CGT has already been paid via self assessment,” she added.

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