HMRC nudges sellers of second homes
HMRC is testing a policy of writing to taxpayers about the need to report and pay the capital gains tax from selling their second home within 60 days of the completion date.
The key problem with the new UK Property Account, which is needed to report and pay capital gains tax (CGT) on residential properties, is that taxpayers are still blissfully unaware that it exists and of the tight deadlines which apply. We highlighted this trap for taxpayers way back in July 2020 when the reporting deadline was only 30 days from the completion date of the sale.
The professional tax and accountancy bodies have been battling with HMRC to improve the operation of the UK Property Account in the 30 months it has been operational and for some months before that.
In June 2021 Helen Thornley reported on the work of the Office of Tax Simplification (OTS) to simplify CGT, including to reform the UK Property Reporting Service. The OTS recommend two actions:
extend the deadline from 30 to 60 days
require conveyancers to help improve awareness by requiring them to provide information about the measure to vendors.
The first point was enacted from 27 October 2021 when the CGT reporting and payment deadline was doubled to 60 days after the completion date, but the second OTS recommendation was ignored by HMRC and the government.
Test letters
In August 2022 HMRC finally took some proactive action in this area.
As an experiment, it issued around 1,200 letters to taxpayers where it held information that showed that the individual may have been either considering selling or had recently sold a UK residential property. Where a tax agent was appointed a copy of this letter was also sent to the taxpayer’s agent.
HMRC is known to access data from the Land Registry for such property-based campaigns, but for the “preparing to sell” targets HMRC must have scraped data from estate agents’ websites of properties advertised for sale.
Inadequate FAQs
It is worth reading the appendix to the HMRC letter, which includes 15 FAQs and answers designed to help the taxpayer understand whether they need to report the sale, how they report, and how to calculate the gain.
We would argue that information is not sufficient to provide answers to all the points a taxpayer will need to understand when calculating and reporting a gain.
On some matters the information is misleading by omission – for example it doesn’t mention that the stamp duty land tax/land and buildings transaction tax/land transaction tax paid on the acquisition of the property can be deducted when calculating the gain. The FAQs also don’t explain how to report and calculate the gain on the disposal of a jointly owned property, which is a very common situation.
False Directions
At two points in the list of FAQs HMRC suggests the taxpayer should refer to Appendix 18 of HMRC’s capital gains manual, but it does not give a direct link to that manual. Instead the FAQ says: “To view this, go to gov.uk and search for Capital Gains Tax.”
We tried following that instruction, but the results returned from a search on the gov.uk home page don’t take you anywhere near the HMRC manuals. This makes sense because the HMRC manuals are written for HMRC employees and not for taxpayers.
So why is HMRC directing taxpayers to read its manual?
Where’s the guidance?
The answer is that there is inadequate guidance on CGT matters published on gov.uk written for ordinary taxpayers.
The first detailed guidance from HMRC regarding the UK Property Service appeared in June 2021, but it was published on the Association of Tax Technicians (ATT) website as a workaround to explain the interaction of the UK Property Service and self assessment. Then in July 2021 ATT published a further FAQ document from HMRC.
These are prime illustrations of the late arrival of HMRC guidance on the gov.uk site, which bugs me no end, and doesn’t help taxpayers or their agents get the tax reporting or payments correct.
It was only in late December 2021 that HMRC finally published the detailed information on the UK Property Reporting Service, which is now in Appendix 18C of the HMRC Capital Gains Manual.
What’s it called?
Incidentally one of the problems is that HMRC can’t decide how to label this CGT reporting requirement. Is it:
The UK property account
The UK property reporting service
The UK property disposal service
CGT property account?
Ask for help
Finally, at no point in the HMRC letter or the list of FAQs does HMRC suggest the taxpayer should talk to a tax adviser or to their accountant before attempting to complete the UK Property Account to report the gain.
If you are thinking about or have just sold a second property and need some advice, please do get in touch with our tax team. They will at the very least be able to help guide you in the right direction to comply with the law and, more importantly, give you some good tax advice as well.