Finance (No.3) Bill

Further written evidence submitted by the Association of Taxation Technicians (ATT) (FB01a)

Finance (No 3) Bill 2017-19: Clause 14, Schedule 2 Returns for Disposals of UK Land

A. Executive summary

1. Clause 14 and Schedule 2 introduce from 6 April 2020 a reporting requirement and payment on account regime where a capital gain is made on the disposal of UK residential property by either:

(i) A UK resident person

(ii) The UK branch or agency of a non-UK resident person.

The Schedule also includes provisions which will affect non-UK residents from April 2019. Our comments are focused on the impact of the new rules on UK residents from April 2020.

2. The new measures require a UK resident person to report the disposal of UK residential property within 30 days of the completion date where a Capital Gains Tax (CGT) liability arises. The potential CGT on disposal must be calculated and a payment on account of the tax is then due within the same 30 day window.

3. Our concern is that the provisions as drafted could result in some UK residents making an excessive payment on account which cannot be reclaimed until the completion of their self-assessment return many months later. This problem will arise when a capital loss is incurred on the disposal of a non-residential asset in the same tax year after the date of completion of the residential property disposal.

B. Impact of subsequent capital losses

4. When calculating the residential gain, individuals will be permitted to take account of capital losses on disposals of assets made before the completion date of the residential property disposal. Such losses will reduce the payment on account required. Where an individual subsequently disposes of another residential property but this time at a loss, there is provision to take this loss into account and recover some of the earlier payment on account. However, if the individual makes a capital loss on a non-residential asset in the same tax year after the completion date of the residential property disposal, they will not be able to take account of such losses until they complete their self-assessment return after the end of the tax year.

5. Under the rules therefore, if an individual exchanges and completes the disposal of a residential property for a gain on 10 April 2020, they must report and pay the tax on the gain by 10 May 2020. If they subsequently realise a capital loss on the disposal of a non-residential asset in the same tax year (2020-21) which reduces the CGT due, they cannot recover the overpayment until they have submitted their tax return. A self-assessment return would normally be completed after the end of the tax year. In this example, the very earliest date that this could be completed would be 6 April 2021, and in practice is likely to be later as relevant information is not always immediately available at the end of the tax year. This leaves the excessive payment on account held by HMRC for at least 10 months before it can be recovered by the taxpayer, creating cash flow consequences.

6. The size of an individual’s payment on account is impacted by the order of disposals, over which they may have limited control. An individual who makes a residential property gain before realising a loss on disposal of land, say, will be required to make a higher payment on account than the individual who disposes of the land and then the residential property, even if after the tax year both have the same overall CGT bill.

7. The position for this new CGT payment on account contrasts with the position for payments on account for Income Tax where, if the individual considers that their payments on account under self-assessment are, or will be, excessive they can submit a claim to reduce their payments on account during the tax year.

C Suggested remedy

8. We would like to see provision made for UK residents to submit an amended residential property return where a capital loss on non-residential assets is incurred after the completion of the residential disposal and within the same tax year. This could be made either by a specific reclaim process for subsequent losses or via an amendment as provided elsewhere in the legislation. Interest and penalties could apply if a reclaim was made on a negligent or fraudulent basis.

The Association of Taxation Technicians

The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible.

Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.

The Association has over 8,500 members and Fellows together with over 5,000 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.

Association of Taxation Technicians

November 2018