As we’ve discussed before, big changes to the tax system are just around the corner. From next year, the introduction of Making Tax Digital will start to see more and more of our dealings with HMRC move online.
One tax area where individuals can already interact online with HMRC – though whether it’s strictly part of Making Tax Digital is uncertain – is Capital Gains Tax (CGT).
Towards the end of 2016, as an add-on to the online personal tax account, HMRC launched an online system for individuals to report capital gains and pay any CGT due.
CGT is the tax paid on the profit made when you sell certain ‘chargeable assets’. These include most personal possessions worth more than £6k, property that’s not your main home, shares that aren’t in an ISA or PEP and business assets. For more information on CGT, visit the HMRC website.
Before HMRC brought in their ‘real time’ online service, any CGT liability had to be reported annually in a Self Assessment tax return. Now though, it can be reported straight away.
You might ask why you would want to pay HMRC any CGT you owe immediately after the transaction, rather than wait until the end of the tax year. And it would be a good question!
Real time reporting works very much to the benefit of HMRC rather than the tax payer, but it does mean they don’t have to go through all the hassle of completing a full Self Assessment tax return, reporting all their other sources of income as well as their CGT liability.
Often, CGT liability is likely to be a one-off, and by choosing the online reporting option, the taxpayer doesn’t get drawn into the Self Assessment system – assuming they’re not already in it of course – saving HMRC time and money.
As the taxpayer’s relationship with HMRC becomes increasingly digital, the process is likely to raise issues as yet unanticipated, and real time online CGT reporting has already prompted questions from within the financial community.
Without getting too technical, a set of rights and obligations apply to taxpayers and HMRC in relation to the Self Assessment tax return – but the online service is not legally a tax return. To add to the confusion, if it’s part of the online personal tax account, financial advisors like ourselves are not allowed to access our clients’ accounts as their agent in order to help them navigate their way through the service.
Until things are clarified then, real time online CGT reporting remains a bit of a grey area. But in the meanwhile, Inca can offer help and advice regarding any aspect of CGT.
If you are considering the sale of property or other assets which will be subject to CGT, Inca can prepare an estimate of your likely CGT liability. For a fixed-fee from as little as £70 (plus VAT), we can give you the information you need to help inform your decision-making.