Tax rules which relate to the sale of second homes are catching people out and landing them with fines, a Cumbrian accountant has warned.
Last year, HMRC updated its payment timescales relating to capital gains earned through the sale of a property that is not the owner’s prime residence.
Rather than allowing up to 21 months for tax on profit to be repaid, the taxman instead started to demand the balance was settled within 30 days.
But Paul Hornby believes that, despite the new rules recently marking their first anniversary, many people are still unaware of the updated regime.
He says it has been poorly communicated by HMRC – and that financial penalties await those who do not comply.
The managing director of JF Hornby and Co said: “Once again, HMRC has struck with an ill-communicated, over-complicated new system of taxation to replace the previous, perfectly adequate system.
“My great fear is that people still do not know these changes have been made and they will face fines and penalties if they do not pay up within what is a very tight timescale.
“In fact, that is evidenced by thousands of landlords and second home owners who have already fallen foul of the rules because of a lack of awareness about the changes.
“With Cumbria’s high levels of second home ownership, I imagine many people have been hit with penalties – and many more will be unless more is done to make them aware of the changes.”
Under the old system, if a UK resident sold a property where Capital Gains Tax (CGT) was due, they would have had to pay it by January 31 after the end of the tax year in which the gain arose – in some cases meaning a gap of up to 21 months between the gain and tax deadline.
But from April 6 last year, the rules changed. Anyone selling a property where CGT was due needed to settle their bill within 30 days of the completion of the sale.
Capital Gains Tax is a tax on the profit an individual makes when they sell an asset that has increased in value. The rate payable on property is greater than on other assets.
A basic rate taxpayer will pay 18 per cent on any gain they make selling a second property, while a higher or additional rate taxpayer will pay 28 per cent. With other assets, the basic rate of CGT is 10 per cent, and the higher rate is 20 per cent.
Paul said: “There are so many issues that HMRC seems to have either overlooked or simply disregarded. Cashflow is one. The many and various circumstances in which a home might be sold – and the complexities they might bring – is another. The lack of time to calculate the tax to be paid, report the gain, and pay the bill is also likely to catch many out.
“While I understand the sentiment behind the move, it is frustrating that more than a year on, so many are seemingly unaware of the new regime. Once again HMRC act, fail to adequately communicate and it is the taxpayer who gets caught out.
“My advice to anyone likely to find themselves in this situation is to calculate the possible advance they might have to pay if selling a second home – and to make sure they have a robust plan in place to be able to pay those funds in full and on time.”