Non-Resident CGT regime continues to cause a headache for taxpayers (and HMRC!)

Stephen Baker in our Personal Tax team outlines that the lack of publicity for the Non-Resident Capital Gains Tax return has seen a huge rise in individuals falling foul of the filing requirement.

Since 6 April 2015, non-resident individuals are liable to UK Capital Gains Tax on the disposal of UK residential property. Such disposals must be reported to HM Revenue & Customs (HMRC) within 30 days by way of a Non-Resident Capital Gains Tax (NRCGT) return. Penalties arise if the return is submitted late.

Despite rules being in existence for over 3 years, there continues to be a large number of individuals falling foul of this filing requirement. Recent published tribunal cases on the issue suggest that the reason for late filing is largely due to the short 30-day timescale for reporting and a general lack of awareness of this deadline.

In most cases where penalties have been levied, by the time the taxpayer realises that a return is required, it is likely that multiple late filing penalties are already accrued (even in cases where the CGT due is zero). For example, if a return is filed 12 months late on a disposal on which no tax is due, a total potential penalty of £700 may arise, comprising of a £100 late filing penalty and two £300 tax geared penalties.

A number of taxpayers have appealed against these penalties by bringing a case to the tax tribunal. From these appeals, a number of interesting outcomes have emerged. As would be expected, ignorance of the rules is not a reasonable excuse and the tribunal has stated this in several cases, although initial tribunal rulings were somewhat critical of HMRC’s lack of sufficient promotion of the new regime and found in favour of taxpayers in a couple of appeals on this basis. More recent tribunal decisions however, have found in favour of HMRC and concluded that lack of awareness of the change in law was not a reasonable excuse.

Despite the trend of cases in favour of HMRC, there were several smaller wins for taxpayers:

  • In cases where there were multiple disposals and subsequent multiple penalties, the tribunal has reduced or eliminated some of these penalties. It was found that there had been no chance for the taxpayer to learn from their first mistake (i.e. filing the return for the first disposal late) and therefore charging penalties for additional disposals would be unfair.
  • The tribunal analysed the penalty legislation in great detail and held that any tax-geared penalties should not exceed 100% of the actual tax due. Therefore, if no NRCGT is actually payable, penalties should be restricted to the initial £100 late filing penalty. It will be interesting to see how this point develops as the legislation applies to other taxes also.

Going forward it appears that there will need to be an increased awareness of the requirement to file a NRCGT return within 30 days. Although this is a requirement that tax advisers should be aware of, clients tend to notify advisers of transactions after the tax yearend (when a NRCGT return is likely to be already long overdue). This problem has the potential to become more prominent; currently there is a proposal to extend the 30-day reporting limit to both Non-resident commercial property disposals and to residential property disposals by UK residents.

It will be interesting to see how HMRC deal with any further appeals on this matter, but in the meantime, if you have any queries regarding NRCGT, please do not hesitate to contact me or one of the Personal Tax Team at Chiene + Tait on 0131 558 5800 or email mail@chiene.co.uk.