Capital Gains Tax  

OTS recommends CGT deadline extensions for divorces and property sales

OTS recommends CGT deadline extensions for divorces and property sales

The Office of Tax Simplification has recommended the government extend the  payment deadlines for Capital Gains Tax for divorcing couples and those selling property.

In its 125-page second report looking at overhauling the CGT system, published last night (May 20), the OTS said it had found many sellers were missing the deadline since it has been cut to 30 days.

Rules introduced in April 2020 meant that a UK resident disposing of a residential property in the UK making a gain which is liable to CGT has 30 calendar days from the date of completion to tell HMRC and pay any tax owed.

But the OTS said this was a “very ambitious target” and had received many “negative responses”.

It found that out of 51,300 CGT returns filed with HM Revenue and Customs between April 6, 2020 and January 6, 2021, 16,800 were filed after the 30-day deadline.

The OTS has called on the government to consider doubling the deadline to 60 days, or to mandate estate agents or conveyancers to distribute HMRC provided information to clients about these requirements.

Richard Jameson, partner in the private wealth team at Saffery Champness, said: “The problems often come with large and relatively-complex transactions such as selling a property, when there is a lot of paperwork and legal hoops to jump through. 

“Particularly at a time like this when the property market is very buoyant, conveyancers are in high demand, and delays can be very common. Having all the necessary paperwork ready within 30 days, and the cash available to pay the tax bill at the same time, is just too ambitious for many taxpayers. 

“It is little wonder then that a third of the initial returns for residential property disposals exceeded the 30-day CGT deadline, and many individuals who own more than one property will welcome the OTS’s suggestion to extend it to 60 days.”

Rosie Hooper, chartered financial planner at Quilter, agreed, saying that selling a house was a complicated process which comes with lots of fees and charges to solicitors, surveyors, estate agents and others. 

Hooper added: “Extending the deadline to pay any CGT on a property sale will provide homeowners with a bit of respite and ensure they can get the finances in order to pay the charge and arrange any reinvestment.”

Divorcing couples

The report also recommended extending the deadline by which divorcing couples are able to claim spousal exemption on CGT when dividing their assets.

Under current rules, married couples or civil partners can transfer their assets between each other without triggering an immediate CGT charge.

This is known as “no gain/no loss”, but if the transfer is made in the next tax year then it is treated as taking place at market value and CGT could be payable.

So, if a couple separate on April 4, 2022 they would only have until April 5, 2022 to transfer their assets without triggering a tax charge. 

The OTS has called on the government to extend the ‘no gain no loss’ window on separation to the later of: the end of the tax year at least two years after separation, or any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court.