Capital Gains Tax and Property Sales - report calls for overhaul

A report by the Office of Tax Simplification on Capital Gains Tax has called for a series of changes.

They include extending the 30 day reporting and payment deadline which has recently led to problems in the housing market. 

The 30-day deadline was introduced in April 2020 and slashed the previous time by which owners with taxable gains on residential property must report and pay CGT by as much as 22 months.

The OTS report - published yesterday afternoon - revealed that about a third of the buy to let investors and other property owners who incurred capital gains tax from property sales in the last financial year failed to file on time because of the restricted 30 day deadline. 

Comments made towards the OTS report during its official consultation period, concerning the new 30 day deadline, were “overwhelmingly negative” and the HMRC told the OTS that 16,800 of 51,300 returns made between April 6 2020 and January 6 2021 missed the deadline.

The report states: “For many taxpayers, 30 days is a very ambitious target — and it is clearly a cause for concern that a third of the returns that were filed took longer than 30 days to arrive ... Many taxpayers only find out about their obligations after they have sold their property.”

The OTS report claims the 30 day deadline raised £935m for the government in 2020-21 - the OTS recommendation to extend it to 60 days could cost the government over £100m in lost penalty payments. 

Other recommendations of the OTS report cover areas of apparent poor communications from the Treasury or confusion amongst taxpayers about the scale and timing of their CGT liability. This confusion was described as “a persistent theme” which came across during the consultation.

The OTS also recommends extending the deadline by which divorcing couples are able to claim spousal exemption on CGT when dividing their assets, to two years after their separation.

Chris Norris, policy director for the National Residential Landlords Association, welcomed the suggested change from 30 days to 60 days saying: “Landlords should always ensure they meet all legally required deadlines to pay tax. 

“That said, today’s report from the Office for Tax Simplification demonstrates a woeful lack of communication and consideration by HMRC about what is expected of those liable for the tax. It adds weight to the argument that the seemingly arbitrary, 30-day deadline has created more problems than it solves.  

“We would support the OTS in recommending an extension to 60 days to avoid landlords missing a shorter deadline, potentially through no fault of their own.”