The issues arise when buy to let owners or those with multiple properties sell homes in consecutive tax years.
Elaine Shiels of RSM 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.”
Shiels says a second problem connected with Capital Gains Tax and property may be more worrying still.
To illustrate it, she gives the example of a couple who sold a property in May last year.
At the time, they were unaware of their income levels for the 2019/20 tax year but took a prudent view and paid CGT at the higher rate of 28 per cent.
They completed their returns appropriately but in the event had been overly cautious and overpaid CGT while underpaying both income tax and national insurance.
Shiels says, in a blog on the RSM 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.”
Capital Gains Tax is figuring increasingly frequently in the property market.
Earlier this month an agent contacted Estate Agent Today to issue what he called “an urgent alert” about the risk of Capital Gains Tax being levied on vendors of some properties with dedicated home offices.
And there has been long-standing worry that the recommendations of a report from the Office for Tax Simplification, calling for CGT to be raised to levels similar to income tax, could be implemented by the government to recoup money spent on Coronavirus. Nimesh Shah, chief executive of tax advisory firm Blick Rothenberg, has warned that possible changes could be coming later this year.