The Society of Trust and Estate Practitioners recently reported that HMRC will, during November 2021, be issuing letters to taxpayers who it considers may have mis-reported their 2019/20 tax year capital gains tax position. The letters will relate to what HMRC considers may be disposals of residential property, subject to tax at a 28% rate, which have been reported by taxpayers as other categories of capital gain, subject to tax at 20%.
As such it seems likely that most recipients of the letters are likely to be unrepresented taxpayers who have made their own return and have made a genuine attempt to correctly report their taxes but who have inadvertently mis-reported the gain.
2019/20 was the last year before the introduction of real time reporting obligations for UK residential property disposals, whereby CGT is payable within 30 (recently extended to 60) days of completion.
Accordingly this is likely to be a diminishing problem area, as taxpayers now reporting gains on their year end tax return will be looking to claim credit for the tax paid on account through the 30/60 day reporting system, which should lead them towards getting the gains in the correct section of the return.
HMRC will be encouraging taxpayers who receive a letter to review their 2019/20 returns for accuracy and, where a correction is needed, to make that correction by 31 January 2022. This seems to reflect that 2019/20 tax returns needed to be filed by 31 January 2021 and may be amended by taxpayers (by revised online filing and without active participation by HMRC) until 31 January 2022.
The timing of this announcement and the deadline of 31 January 2022 seem to reflect HMRC being rather late out of the blocks in spotting this potential issue and the fact that they have 12 months from the date of filing of a tax return to open a speculative enquiry into that return. As such, many of the returns in question are probably still ‘in time’ for a taxpayer self-amendment, but ‘out of time’ for HMRC enquiry.
On that basis, HMRC’s options if the taxpayer does not self amend are likely to be limited to use of the so called ‘discovery assessment’ provisions.
The next step
Should you receive a letter from HMRC or if you think you might otherwise be affected by this issue, please get in touch with Graham Boar or your usual UHY contact for more information.