HMRC has introduced a mechanism to allow initial overpayments of capital gains tax (CGT) to be set-off against income tax and NIC liabilities due by 31 January 2023.
There are two ways in which a taxpayer could end up with an initial overpayment of CGT for a tax year:
- Where they have used the UK property reporting service and paid CGT ‘on account’ in respect of a gain arising the disposal of UK residential property;
- Where they have used the real time capital gains service to report capital gains from the disposal of assets other than UK properties, and have paid the CGT due with that return.
The UK property service was apparently designed with little thought to how it would interact with the self assessment process, but the UK taxpayer is obliged to report a gain from residential property twice: first on the UK Property Account and later on their self assessment tax return. Non-resident taxpayers have different reporting obligations.
The real time CGT system is intended to be used by taxpayers who are not within self assessment, and thus avoids the need for the individual to register for self assessment just to report a one-off gain. However, the real-time CGT return has no basis in law as I pointed out in 2018.
The tax due following submission of a UK property account needs to be reflected on the SA return, and this is where the problems begin.
2020/21 SA returns
Taxpayers and advisers found that the tax paid on account following a property disposal was not automatically set against the other tax due as reported on the 2020/21 SA tax return.
In October 2021 Helen Thornley explained how taxpayers could reclaim CGT paid on account.
The only solution for that tax year was to ring HMRC and ask for a manual set-off of the tax paid that exceeded the final CGT bill. Where the CGT overpayment exceeds the balance of the SA tax liability, the taxpayer can request a refund.
This process has now been set out in para 3.2.3 of appendix 18 to HMRC capital gains manual.
2021/22 SA returns
The process of obtaining a CGT refund has been eased slightly for the 2021/22 SA tax returns.
Any initial overpayment of CGT for 2021/22 will be automatically set-off against any other tax due as calculated on the SA return for that tax year, see para 3.2.4 of appendix 18 of HMRC capital gains manual.
If the overpayment of CGT is greater than the other SA tax due by 31 January 2023, the excess will not be automatically repaid. The taxpayer or their agent needs to contact HMRC on 0300 200 3300 to enable the overpaid tax to be repaid.
There are at least ten situations where a taxpayer cannot or should not submit the UK property return online, for example when the SA return has already been submitted reporting the property gains that arose in the year.
Where the online UK property service can’t be used the taxpayer needs to file a UK property paper return instead. This paper return can only be obtained by the taxpayer or their agent ringing HMRC on 0300 200 3300 (open 8am to 6pm weekdays).
Agent update issue 103 reports that the paper return has been improved to provide the taxpayer with more guidance. It now includes sections to report details of the authorised tax agent and to enter repayment details where the return is an amended return.
No payment reference
Where a paper UK property return has been submitted HMRC should supply the taxpayer with a payment reference, but it can take some weeks or months for this payment reference to be issued.
If the CGT due on a property disposal in 2021/22 has not been paid on account, HMRC advises the following:
“The self assessment return should be completed to reflect the CGT that will be charged via the CGT on UK Property Account, and a note made in box 54 of the SA108 to advise that the charge reference has not yet been allocated.”
Taxpayers who are not resident in the UK need to report gains and losses from the disposal of all UK real property (residential and commercial), held directly or indirectly, using the UK property account service. However, non-resident taxpayers may not be within the self assessment system.
2022/23 SA returns
Is it too much to hope that the UK Property Account service could be fully integrated with the self-assessment system in time for completion of the 2023/23 SA returns? I’m not holding my breath.