21st
May 2021
Many landlords have encountered Capital Gains Tax issues when selling properties in successive years, according to an accountant.
Elaine Shiels of a provider of audit, tax and consulting services to middle market leaders globally, says: “Buy to let investors who are reducing their portfolio and owners of other properties which will give rise to a taxable gain on sale, may make taxable disposals in consecutive tax years. Obvious perhaps, but unfortunately HMRC’s systems cannot cope with that.”
She continues: “If the taxpayer reported a 2020/21 taxable gain online, reporting a 2021/22 taxable gain will almost certainly generate an incorrect calculation. HMRC describes this as a temporary problem and advises that vendors ask for a paper return to resolve the issue.”
However Shiels does not stop there as she discloses a second issue which is even more problematic connected with property and Capital Gains Tax.
She explains this by outlining the problems encountered when a couple sold their property in May 2020.
They were not fully unaware of their income levels for the 2019/20 tax year so instead of downplaying their forecast they instead took a cautious view and consequently paid Capital Gains Tax at the higher rate of 28%.
Upon submitting their returns in the best of faith, they found they were overly prudent and paid more CGT than required, however they underpaid both NI and income tax.
Shiels writes in a blog on the firm’s website: “It is now emerging that, in these circumstances, HMRC is insisting that the additional income tax and national insurance liabilities must be paid in full.
"The overpayment of CGT can only be reclaimed by submitting an amended CGT return online. This feels unjust. If HMRC recognises the CGT overpayment, why will they not allow it to be set against other liabilities? Why should HMRC be entitled to charge interest and penalties on the income tax outstanding when overpaid CGT has not been repaid?”
She continues: “The way in which HMRC’s CGT system has been designed means that – far from being digital by default – second and subsequent disposals require manual returns. What’s more, taxpayers find themselves having to overpay tax unnecessarily and then struggling to secure repayments from HMRC. This testifies to the inadequate design of the CGT system and augers very badly for the next round of [the HMRC programme called] Making Tax Digital.”
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