Taxpayers who have sold a property, which was not their main residence, must file a capital gains tax (CGT) return within 60 days of completion if a chargeable gain arises. However, there are some interesting rules that could catch taxpayers out.

UK residents, who make a disposal of UK residential property must use the CGT on UK Property Account to report, and pay to HMRC, any CGT arising from the disposal within 60 days of disposing of the property.

(Non-UK residents must report all disposals of UK property to HMRC, even if there is no tax to pay or they have made a loss. This includes any disposal of residential or non-residential UK land and indirect disposals of UK property.)

Quite interesting point number 1

The 60-day rule is based on the completion date, not the exchange date. So, for example, if the exchange date was, say, 15 March 2023, but the completion date was, say, 15 April 2023, then the deadline for submission of the return, and payment of any tax due, is 14 June 2023.

There is no need to report any disposal where there is no CGT liability (although it is possible to report on a voluntary basis). So, if the gain is fully covered by the private residence exemption, annual exemption (£12,300 for a disposal in 2022/23, £6,000 for a disposal in 2023/24, or £3,000 in 2024/25 onwards), brought forward or current year losses, or where a CGT relief applies which reduce the gain to nil, there will be no liability. Note that for this purpose, it is normally necessary to use the date of exchange (unless the contract is subject to conditions, in which case the date of disposal is the date on which all the conditions are satisfied, i.e. the date the contract becomes unconditional).

So, continuing the above example, if the exchange date was 15 March, but the completion date was 15 April, the disposal would have taken place in the 2022/23 tax year and can benefit from a £12,300 annual exemption. Any current year losses to be deducted would have to have been incurred in the 2022/23 tax year.

The annual exempt amount should be deducted in the most tax effective way. In other words, it should be deducted from gains which are subject to tax at the highest rate in priority to those taxed at the lower rate(s). Capital losses are similarly allocated in the most tax effective way. However, in setting off capital losses, the following general rules apply:

• all capital losses must be claimed;
• capital losses must first be set off against capital gains in the same tax year (deducted in the most tax efficient way);
• after reducing the current year gains to nil, the excess is carried forward to set against gains in future tax years (deducted in the most tax efficient way);
• allowable capital losses can be carried back on the taxpayer’s death.

Quite interesting point number 2

As set out above, current year losses must be set against current year gains. This is automatic; the taxpayer has no choice.

However, only current year losses that arise prior to the date of exchange for the disposal of UK land can be set against the property gain (whether or not the loss has yet been reported to HMRC) for the purposes of completing the CGT on UK Property Account return and calculating the CGT due on account. Current year losses that arise after the date of exchange for the disposal of UK land cannot be taken into account in real time.

So, expanding on the above example, if a capital loss was incurred on say the disposal of some shares, on 31 March 2023, the taxpayer would not be allowed to deduct that capital loss from their gain on the property disposal when completing their CGT on UK Property Account return and would not be able to use that loss to reduce the CGT payable on account.

They would have to wait until completing their self-assessment tax return to be able to deduct that current year capital loss from their gain on the property disposal.

The taxpayer will have paid too much CGT on account, due to the allowable current year loss having been realised later in the tax year, and a self-assessment tax return must be filed to report the loss and correct the CGT position.

Note that this issue only affects current year losses. Losses brought forward have been quantified already and can be set against the gain on the CGT on UK Property Account return and the taxpayer would be able to use those losses to reduce the CGT payable on account.

It’s extremely important, therefore, to carefully consider the timing of disposals. Remember that it is normally the date of exchange that decides in which tax year a capital gain or loss on a property disposal falls, not the date of completion (even though the 60-day reporting deadline is based on the date of completion). And, triggering a capital loss to offset against an earlier property capital gain in the same tax year will not result in a reduction in the CGT payable on account, and although the taxpayer will get the tax back after they submit their self-assessment tax return, that could be some time later.  

For more information, please see CG-APP18 Capital Gains Tax (CGT) on UK Property Account guidance. The guidance is very detailed and includes all of the information required to report the gain and pay the tax using HMRC’s CGT on property account, whether there has been one disposal or multiple disposals. It also includes information on mixed use properties, the interaction with investment bond chargeable event gains, and, where a CGT relief, for example, business asset disposal relief, applies.

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Amongst a range of measures intended to reduce fraud, the Government says it will extend the ban on cold calls to cover all financial and investment products.

Under the Financial Guidance and Claims Act 2018, cold calls are already banned from personal injury firms and pension providers (unless the consumer has explicitly agreed to be contacted). However, the Government says that it will consult on a wider ban on cold calls by the summer, with implementation to follow as soon as possible. This means that the public will know that cold calls about financial products are a scam and should have the confidence to hang up should they receive one of these calls.

A cold call is defined in the Government’s Policy Paper as “Making an unsolicited call to sell a product – in some cases these are legal, in others they are not (such as when making a call to someone registered with the Telephone Preference Service or when selling certain products like pensions or injury claims services).”

Other measures included in the Policy Paper are that the Government will:

• establish a new national fraud squad with over 400 new posts and make fraud a priority for the police;
• deploy the UK intelligence community and lead a new global partnership to relentlessly pursue fraudsters wherever they are in the world;
• put more fraudsters behind bars through better investigation and prosecution processes for fraud and digital offences;
• ban SIM farms which are used by criminals to send thousands of scam texts at once;
• stop fraudsters from being able to send mass text messages by requiring mass texting services to be registered, subject to a rapid review;
• Replace Action Fraud with a state-of-the-art system for victims to report fraud and cyber crimes to the police;
• stop people from hiding behind fake companies and create new powers to take down fraudulent websites;
• work with industry to make sure that intelligence is shared quickly with each other and law enforcement;
• change the law so that more victims of fraud will get their money back;
• overhaul and streamline fraud communications so that people know how to protect themselves from fraud and how to report it;
• make the tech sector put in place extra protections for their customers and introduce tough penalties for those who do not; and
• shine a light on which platforms are the safest, making sure that companies are properly incentivised to combat fraud.

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A brief roundup of the weekly tax, trusts and protection news not featured in our main bulletins.

FCA sets out recommendations for LDI managers

The FCA has published a series of recommendations for asset managers designed to increase resilience of Liability Driven Investment (LDI) funds. Guidance set from the FCA is around risk management, such as stress testing and client communication, as well as operational arrangements for LDI managers so that they can address risks to market integrity and financial stability. The FCA has been engaging directly with firms involved in the management of LDI portfolios to develop and maintain increased resilience to deal with possible future volatility.

Financial watchdog puts banks on alert in fight against money laundering via the Post Office

A series of measures designed to reduce the risk of money laundering via the Post Office have today been set out by the FCA. The regulator brought together partners, industry, and government to strengthen controls while seeking to ensure that legitimate customers can continue to use the Post Office for Everyday Banking

The measures set out for banks today include:

• A move towards card-based transactions and away from paying-in slips, where possible, to allow enhanced monitoring. 
• Upskilling staff to spot patterns of suspicious activity. 
• Enhancing monitoring capabilities in banks which allow them to identify suspicious activity.
• Reducing cash deposit limits at the Post Office, subject to customer arrangements, to below the existing limit of £20,000 per transaction. Banks should take a data-led approach and consider whether a tailored offer is appropriate.
• Reducing the time taken to submit Suspicious Activity Reports to the National Crime Agency (NCA), enabling them to take timely action.  
• Improving intelligence sharing so that information is passed on to other firms, law enforcement and the FCA on a regular basis.

Post Offices are an important part of protecting access to cash for people and small businesses. FCA research found 6% of adults in the UK used cash to pay for everything over the 12 months from May 2021, with this figure increasing (9%) for those in vulnerable circumstances. While most people have reasonable access to cash, it is vital that any money laundering protections don’t get in the way of legitimate customers and businesses accessing services at the Post Office.

While banks have made good progress in improving safeguards, including a 43% drop in the time taken to report suspicious activity at Post Offices, there is still more work to do.

HMRC One to Many letters – Electronic Sales Suppression

HMRC have advised the Chartered Institute of Taxation (CIOT) about a One to Many (OTM) letters campaign connected to the use of till systems that hide or reduce the value of individual transactions on a business’s electronic sale records. Such systems reduce the recorded turnover of the business and corresponding tax liabilities, whilst providing what appears to be a credible and compliant audit trail. This is known as Electronic Sales Suppression (ESS).

The campaign is targeting businesses which might not have paid the correct amount of income tax, corporation tax and / or VAT due to misuse of their till systems. The intention is to provide an opportunity for businesses to get their tax affairs in order, by coming forward voluntarily and disclosing undeclared sales. If people do not come forward, HMRC may issue an assessment and/or open an investigation and harsher penalties will apply.

The letters started to be issued from 11 April 2023 and will continue to be rolled out during May. It is envisaged that this campaign will be continuous for at least the coming year.

OPBAS publishes report on legal and accountancy sector supervision

The Office for Professional Body Anti-Money Laundering Supervision (OPBAS) is housed within the FCA and is responsible for overseeing 25 Professional Body Supervisors (PBSs) for anti-money laundering in the legal and accountancy sector. In its fourth report, OPBAS has found that professional bodies are continuing to demonstrate good levels of compliance with money laundering regulations but improvements in how effectively they supervise have not been good enough.

For example, the report found that too many PBSs still failed to share relevant information and intelligence proactively with regulators and law enforcement, and that action taken against firms who break the rules has been too slow in some cases. OPBAS will continue to use all the regulatory tools and powers available within the current anti-money laundering (AML) framework to hold them accountable.

Tax take up 10% in a single year

HMRC has published its latest monthly bulletin: “Tax receipts and National Insurance contributions for the UK”. This shows that the total tax collected by HMRC soared this year by £71.1bn to £786.6bn, up from £633bn pre-covid as a result of the highest tax burden in 40 years. Below is a breakdown of various tax collected by HMRC:

Receipts from PAYE income tax and National Insurance contributions (NICs) for tax year 2022/23 were £378.2bn, which was £40.2bn higher than in the same period a year earlier.

Tax receipts from income tax, capital gains tax (CGT) and NICs alone hit £47bn in March, £7.6bn higher than a year ago.

Income tax take totalled £20.2bn, down from £20.8bn in February 2023, which is always a higher figure due to year end self-assessment payments. When compared with the previous year, income tax accounted for £19bn in March 2022.

Overall receipts for business taxes for the 2022/23 tax year hit £84.9bn, an increase of £17.5bn compared with the same period a year earlier.

This was mainly due to higher offshore receipts, as a result of high energy prices following Russia’s invasion of Ukraine, and the new energy profits levy, which was introduced in May 2022.

VAT receipts for the year hit £159.5bn, up by £2bn compared with the same period a year earlier. For the month, VAT receipts hit £8.3bn

House price increases, especially in the southeast, and double figure inflation pushed inheritance tax (IHT) receipts up to a record £7.1bn from April 2022 to March 2023, an increase of more than £1bn on the same period a year earlier.

FCA warns consumers about mismanagement of ‘asset protection’ trust schemes

The FCA has set out a warning to consumer in a Press Release in relation to trusts in general and “asset protection” trusts in particular. The FCA states that it has seen trust assets to be inappropriately invested, including into high-risk illiquid assets. In most cases, these investments are not suitable. When investing through a trust, there is also a risk that the usual protections in place for consumers are lost.

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The day was marked by 23 announcements, but few were of great interest

Tax Administration and Maintenance Day (TAMD) is an opportunity for the Treasury to publish a range of documents (consultation, responses, calls for evidence, etc.) that would otherwise add to the paper mountain created on Budget Day. This year’s TAMD contained a few interesting nuggets amongst plenty of meh material. First, the more interesting stuff:

National Insurance (NIC) credits We commented in a recent Bulletin on the messy combination of the High Income Child Benefit Charge, claims for Child Benefit and NIC credits. Now the Government says it will act on this issue so that affected parents who failed to claim NIC credits will receive them retrospectively. Further details will emerge ‘in due course’.

Stamp Taxes on Shares The Government has published a consultation on proposals to modernise and rationalise the framework for Stamp Taxes on Shares. The consultation raises the possibility of replacing the current dual framework of Stamp Duty and Stamp Duty Reserve Tax with one securities tax.

Off-payroll working The Government has published a consultation on a possible legislative change to address the over-collection of tax that can arise when the off-payroll working rules (also known as IR35) are not properly complied with. In such circumstances, the deemed employer is liable for the full PAYE liability due on the worker’s income, but the worker and their personal service company may have already paid tax and NICs on the same income. This consultation suggests a potential change to allow HMRC to set off the worker’s tax and NICs already paid against the employer’s PAYE liability.

Umbrella companies Some things do not arrive on time…so a summary of responses will be published shortly to a call for evidence on the umbrella company market launched in 2021. At the same time, a fresh consultation will be issued reviewing policy options for the umbrella company market.

Information and data A call for evidence on information and data powers has been published as part of the Tax Administration Framework Review (TAFR). The focus is on standardising data provision from third parties, creating more flexible legislation (!), pre-population of tax returns and trying to bring more consistency between different tax regimes.

HMRC sandbox The Government has published a discussion document on a potential new legislative approach that HMRC could use for piloting tax changes (a ‘sandbox’, borrowing FCA jargon).

Employee Ownership Trusts (EOTs) Later in 2023 there will be a consultation on the ‘use and effectiveness’ of the EOT tax regime. HMRC wants to be sure that the reliefs available are not being used for tax planning purposes that it had not envisaged.

Now the less interesting material:

Repayment agents In January, the Government announced that income tax repayment agents would be required to register with HMRC. The deadline for registration has now been set as 2 August 2023, along with details of how to register with HMRC and the exemptions available (including for those who do not charge any fee for submitting repayment claims). 

Help to Save The Help to Save scheme was extended to April 2025 in the March Budget. The Treasury has now issued a consultation on the scheme’s design aiming for simplification and greater take up by those with low income.

Reserved Investor Fund A consultation has been published by HMRC and the Treasury on (yet another) new type of investment fund: the Reserved Investor Fund (RIF). RIFs would be directed at professional and institutional investors, with the broader retail investment market excluded.

Taxation of Decentralised Finance lending and staking The demise of FTX has not stopped the Government publishing a response to the call for evidence on the taxation of crypto-asset transactions in Decentralised Finance (DeFi) lending and staking. Simultaneously, a consultation has been published potential amendment to the tax rules so that they ‘better reflect the substance of these arrangements’.

Construction Industry Scheme (CIS) A new consultation proposes reforms to the CIS, including strengthening the tests for Gross Payment Status (GPS) and some administrative simplifications, such as excluding from the CIS most payments made by commercial landlords to tenants.

Diverted profits tax, transfer pricing and permanent establishment reform Next month a consultation will be published on simplifying and updating legislation for:

• diverted profits tax (increased rate on diverted UK profits);
• transfer pricing (related party transactions); and
• permanent establishments (right to tax non-resident entities with a UK business presence). 

Charities compliance A consultation on tax compliance for charities has been published indicating that HMRC thinks ‘some rules are not working as intended.’ The consultation covers areas such as:

• preventing donors from obtaining a financial benefit from their donation;
• preventing abuse of the charitable investment rules;
• closing a gap in non-charitable expenditure rules; and
• sanctioning charities that do not meet their Filing and Payment Obligations.

Data gaps Following publication of a summary of responses to HMRC’s consultation on improving the data it collects. the Government will start – after the necessary legislation passes – collecting new data on self-employed start/end dates, employee hours worked, and dividends paid in owner-managed businesses. It will be interesting to see what it does with the data.

Tackling promoters of tax avoidance. The Government has published a consultation on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. It is also consulting on speeding up disqualification of directors of companies involved in promoting tax avoidance.

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