Jennifer Adams reviews the impact of the introduction of the UK Property Reporting Service (also known as the 'CGT on UK Property Service') and the practical issues that remain.
The introduction of the UK Property Reporting Service has not been all smooth sailing. Any problems arising are arguably because the system was introduced quickly, so that integration with the Government Gateway self-assessment system was not possible. HMRC has benefited as the tax has been collected earlier than the 31 January deadline.
Reporting requirements
As a reminder – a property return must be submitted to HMRC within 60 days of the date of the completion (not date of exchange). The return must be filed digitally by the setting up of a property account separate from the usual self-assessment account.
The property account is therefore a separate standalone service accessed via specific pages on the Gov.uk website. Taxpayers with a UK property account who move house, for example, will need to update their property account with their new address as well as notify HMRC on the self-assessment tax return.
HMRC has not commented on whether the systems will be integrated in the future, but it is interesting to note that in January 2024, HMRC introduced an optional 'Real-Time Reporting Service', allowing UK residents to report non-residential property gains online using the taxpayer's personal tax account. This integration with the usual self-assessment system allows gains to be reported without waiting until the end of the tax year. If this service is used, no self-assessment tax return for that year is required unless the taxpayer has other reasons to submit.
Who needs to report?
Anyone who sells or gifts a residential property not covered by the principal private residence exemption is required to complete the return, as are grants of leases out of residential properties and any other transfers.
Reporting is not required for the disposal of land or commercial property.
Problem 1: Getting registered
It is not clear from HMRC's website that any gain made on the disposal of residential property needs to be declared separately from the self-assessment return. The only reference on the website is a few words, “If you’re already registered for Self Assessment, you’ll also need to include details of the sale in your Self Assessment tax return.” Although a solicitor acting on a sale should confirm this, it would be helpful to stress this on HMRC's website.
HMRC assumes that the majority of taxpayers are digitally capable. Paper returns are permitted, but only in specific circumstances. It is possibly not known that HMRC segregates taxpayers into those who are 'digitally excluded' (i.e., unable to manage their own property account due to age, disability, remoteness of location or for any other reason, including religious beliefs) from those who are 'digitally challenged'.
Only 'digitally excluded' taxpayers are permitted to submit paper returns. If the taxpayer cannot verify their identity online, they can also use a paper return. All other taxpayers, including those deemed to be 'digitally challenged' (i.e., those who struggle to handle the process by themselves) will not be eligible and will be required to contact HMRC for help, which will invariably mean hours spent on the phone trying to get through. Instructions on the HMRC website do not detail the difference, only stating: ‘If you cannot access the internet ask HMRC for a paper form’, with no other explanation.
Although there is step-by-step guidance for those taxpayers who want to instruct an agent to complete the return, the process is not straightforward, needing the client to set up the Property Portal account and for there to be another 64-8 authority-type form to be completed.
The question to ask is whether HMRC would refuse to accept a paper return if the taxpayer has not made contact before sending it. HMRC's interactive pdf form does not include a question asking why the taxpayer has not used the property portal. Even so, the form is relatively easy to complete, whether online or on paper; the difficulty comes in opening the property portal account.
Problem 2: Who needs to submit?
Submitting any tax return takes time; therefore, it would be helpful if somewhere on the initial pages, a paragraph could be inserted to confirm which taxpayers do not have to complete the return, i.e.:
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where there is no gain;
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the gain arising is covered by the annual exemption;
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a self-assessment tax return has already been completed and the disposal has been declared on that return;
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the taxable gain is covered with letting relief claim; or
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there has been a ‘no gain, no loss’ situation (such as transfers between spouses, civil partners, charity).
Problem 3: Paying the tax
As well as submission of the return, payment must be made within the same 60-day period. Problems may arise should a paper return be submitted as there needs to be a reference number to use for payment. On a paper return, this is completed by HMRC on receipt which may take time to process. HMRC appreciates this and pauses the 60-day requirement between their receipt of a completed paper form and the issuing of a demand. Therefore, the taxpayer will not be penalised for the parts of the reporting and payment process outside their control. When the UK property disposal charge is raised manually by HMRC, a letter advising of the reference number and how to pay will be issued; the taxpayer then has 14 days to pay any tax due.
Penalties are levied where a return is submitted late, or payment is made late. The initial late filing penalty is £100; a further £300 or 5% of the tax due is charged should the return be more than six months late. The same penalty is charged again if the return is over 12 months late. In contrast with late payment of self-assessment, daily penalties are not charged.
Problem 4: Declaring amendments
Many taxpayers will be liable to report gains before other income figures are known and therefore may need to complete the report using estimates. A box on the return indicates whether estimates have been used in the calculation. The box only needs to be ticked if the correct figure would impact on the amount of CGT due. However, HMRC's guidance confirms there is no need to tick the box should the only estimate be of income, and the taxpayer is confident that the CGT charge would not differ unless the income increases the percentage of tax due. Where the original return is submitted on paper, the amendment must also be made on paper. For those in self-assessment, final adjustments to the return figures can be made via that return.
Should an amendment result in additional tax being payable, HMRC has confirmed that interest will not be charged if the payment on account is subsequently found to be insufficient. However, the proviso is that the 'estimated' box must be ticked. If the box is not ticked, HMRC has confirmed that interest will be charged.
Problem 5: Ensuring correct order of submission
The separate reporting systems mean that the property return must be submitted before any self-assessment return is completed. In practice, the property tax portal will block the submission of a property return online if a self-assessment return has been filed.
However, there are some instances where a tax return can replace a property return, e.g., if the amount of CGT that would be due for the year and reported via a self-assessment return is greater than would otherwise be included on a property return. Again, this fact is not explained on HMRC's website guidance.
Practical tip
The rules for reporting residential property gains are to be found under HMRC's Capital Gains Manual at CG73550. The section includes an easily overlooked but important link taking the reader to Appendix CG-APP18-100, which covers a further 18 sections of rules where many of the provisos and examples can be found.
