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How HMRC is profiting from non-res property owners

Solicitors are failing to warn non-res clients on the fines they can accrue upon failure to declare CGT within 30 days of sale, and the Revenue is revelling at their expense, writes Andy White

Why are solicitors falling short of their obligations to clients when it comes to warning non-UK resident property owners about the 30-day rule for declaring Capital Gains Tax (CGT) that was introduced in the April 2015 budget, I wonder?

It’s not that the rule is unclear or open to misinterpretation. Under the terms of the legislation introduced in April 2015, any CGT owing on the sale of a UK residential property by a non-UK resident must be declared within 30 days of the completion of the sale.

No public comment appears to have been forthcoming from The Law Society about the situation, although I am becoming increasingly aware of rumbles of discord in legal and professional circles about the fall-out from it. Strangely, the payment of Stamp Duty Land Tax (SDLT)  - another tax which, unusually, is payable by reference to the transaction date rather than fixed year end – is routinely dealt with by lawyers. But with solicitors seemingly washing their hands of any involvement in handling CGT, it’s quickly morphing into a hot topic of conversation around dining tables and boardrooms nationwide, and in the City in particular, where the concentration of property held by non-residents is greatest.

Nearly 60,000 residential properties changed hands in London over the past twelve months and with non-resident property owners known to be most active in the prime London market - where prices are highest - it’s not difficult to believe that many of these deals are unwittingly falling foul of the 2015 CGT ruling. Not only that, but it’s also possible that in some cases the late filing fines being incurred are greater than the initial CGT owning on the deal. It can’t have escaped anyone’s notice that HMRC are making increasing amounts of money by levying interest and penalties on late payments and this appears to be another step along this well-trodden path, although statistics relating to the revenue payable to HMRC as a result of this change won’t be available until October 2017.

Nevertheless, falling foul of the ruling is an expensive mistake that’s costing property owners dear and must be losing solicitors – surely the professionals best-placed to alert their clients to the fact that the filing clock is ticking – credibility.

Ignorance of the relevant timeframe is proving no defence and the change to legislation is helping to boost the coffers at HMRC above and beyond expectations while leaving a bad taste in the mouths of vendors. So it’s time for everyone involved to step up and be clear; HMRC is obviously determined to enforce the 30-day ruling and the penalty regime associated with it, so it’s important for anyone contemplating selling a residential property to get their proverbial ducks in a row.

Solicitors therefore have a duty to clients who are actively buying and selling properties in the UK on a regular basis. Advising them on the best way to structure the finance and tax burden implications of their transaction is a fundamental cornerstone of their remit. It is often a case of telling it like it is so that there are no surprises at the back end of a deal. And definitely no dinner party fodder of missed deadlines and hefty fines for discussion.

Andy White is Senior Partner at CBW LLP