NRCGT penalty

In July 2016 I found out that my client (who lives in Indonesia) had sold a UK buy to let property in October 2015.  I immediately sent in a NRCGT return online.  He now has a penalty notice for £1,300 for not sending in the return within 30 days of the conveyance.  The gain returned is £204.  The fine seems to me to be disproportionate and unjust because he, not unreasonably, expected to return the details of the gain on his 2016 tax return in the normal way.  With hindsight I can see that I should have flagged this up just because he is a non resident landlord in case he happened to want to sell a property.  I am looking for reasonable excuses to appeal this and pointed out that knowing he is non resident his solicitor should have warned him about the 30 days.  The solicitor is well respected locally and has replied candidly that he knew nothing about the 30 day time limit and to be fair neither did I at the start of the 2015-16 tax year.  I know that not knowing the rules is no excuse but this seems so unfair.  If professionals don’t know about new online reporting rules how can the tax payer in Indonesia (where communications are not the best) be expected to know?  Is there any way to challenge this and is anyone else in the same boat?

  • Hi Angela , I was very much in the same boat , but my post fell off the edge when the forum platform changed . I will try and get it reinstared . My appeal against the penalty was accepted . There was a post by the Faculty in about Feb this year , about HMRC changing their position ,on the occasions when an NRCGTreturn was not necessary , but i think that to be useable , the FA needs royal assent , which was delayed , but is now imminent . I am no expert in this , and would welcomew , as would you , some informed input on the subject . Julian
  • In reply to Julian:

    Thanks Julian
    Can I ask what the grounds for your appeal were? My client's only excuse is that he genuinely had no idea that he was not totally compliant. Was there a technical flaw somewhere in the process of putting the penalties in place that make his position reasonable? The penalties are the same as for a late tax return but there was no end of publicity in advance of late tax return penalties coming in. I think people were made aware that CGT would run on non resident gains on UK rental property wef April 2015, but publicity for the harsh penalty regime seemed to be lacking to me.
  • In reply to Angela Riley:

    I made a submission by letter to the HMRC office that issued my clients last SA return ,of the details of the disposal , with a comp' , on day 29 , "to be signed for ". It was redirected to Newcastle . Seven weeks later , i received a letter , apologising for the delay , and requesting that i make a return of the NRCGT on the online return , to which i was directed . This i did within a couple of days , only to receive a late filing penalty . So my "grounds" were that i made a submission , but not on the online form . I had a gain covered by the PPR last 18 months exemption . I don't know if that is the same thing as a no gain no loss situation . The Faculty made a post in about Feb 2016 , which i can't find on the new platform , saying that HMRC had advised it that no gain no loss NRCGT disposals would not require a return , and that any penalties arising from such situations would be cancelled .We need someone with greater experience than you and i to make a contribution on this subject , for your benefit , and for all the other faculty members . Faculty please respond !!!
  • In reply to Julian:

    Here is the Faculty's post of 09/03/2016 :-
    With effect from 6 April 2015 non-resident individuals have been liable to capital gains tax (CGT) on the disposal of a UK residential property, see our previous news item Capital gains tax charge on residential property. Any disposal after that date by a non-resident is liable to CGT on gains arising from 6 April 2015.

    A report of the disposal has to be made within 30 days of the conveyance and any tax due paid within the same 30-day period unless the individual is already registered for self assessment – in that case, the payment can be deferred until the normal due date of 31 January following the end of the tax year.

    There was a requirement to file a return even where there was no gain to report, a particularly common situation in these early days of the tax, as it only applies to gains arising from 6 April 2015.

    The Tax Faculty has been advised by HMRC that a new section will be inserted into Taxes Management Act 1970 by Finance Bill 2016 making the return elective (ie, optional rather than mandatory) where there is:

    a disposal of a residential property on or after 6 April 2015 for no gain or loss, or

    the grant of a lease for no premium to an unconnected person in a bargain at arm’s-length.

    As the relaxation is backdated to 6 April 2015 anybody who has not filed a return for a disposal at no gain or loss will not now face penalties and any elective late return will not be liable to penalties.
  • In reply to Julian:

    Thanks again Julian
    I will ask in my appeal that a gain of £204 should be deemed as no gain no loss on the grounds that it would be inequitable to penalise him so harshly for so small a gain and the relaxation as announced should apply to gains of this nature. Due to inflation any UK house owned for15+ years is almost bound to be sold at a price exceeding the cost by a substantial figure, of which some tiny part must fall after 5 April 2015, when time apportioned. This is just a paper gain and additional capital works at the start would have been not worth doing if they were going to be sufficient to eliminate the 15+ year inflation gain.
    Am I on the right lines here?
  • In reply to Angela Riley:

    Review your calcs !!! Was this property ppr at any time ? Is there a facility for PM or telephone no exchange on the forum ?
  • In reply to Julian:

    click on my name , you will find my e mail .
  • In reply to Julian:

    That's very kind of you. I've put in the appeal now stating that the calculation I previously submitted (worked out using the HMRC ready reckoner on their website) was a mistake. A house that has been owned for so long is bound to show a significant inflation gain with a small part of it time apportioned to the post 5 April 2015 period. However it also states on the website that the gain may be worked out using the actual value at 5 April 2015. It is our contention that the house did not appreciate between April 2015 and July, when the sale was agreed, hence no gain no loss. I would suggest that other unsuspecting taxpayers avoid the HMRC ready reckoner unless the property really is standing at a gain, as it is inevitable that it will work out a gain with part of it time apportioned after 5 April.
  • Anonymous

    In reply to Angela Riley:

    Look forward to hearing the end of the story . I'm sure that there is a moral to this !!!
  • In reply to Julian:

    could you update your views on the original query given the detail in the Finance Bill on the definition of No gain No loss.
  • Anonymous

    In reply to Helen Spauls:

    Julian and Helen

    I have just had a very similar case, where a relatively impecunious vicar and his wife sold a small jointly-owned flat in the UK in September 2015. They were not professionally represented at the time, and had no idea about the non-resident CGT rules; but they were in self-assessment because the flat had previously been let. The solicitor who dealt with the conveyancing also had no knowledge of the new rules, and did not draw to their attention the requirement to file a NRCGT return within 30 days. Nevertheless, they diligently filed their paper self-assessment returns in May 2016, and declared details of the gain of about £20k (£10k each) in the Capital Gains pages - but of course, being completely unaware of the rules, they worked out the calculation on the basis of the original cost of the flat in 2008, not its valuation in April 2015. If they had worked out the gain on the default NRCGT basis it would have been entirely reasonable to assume that there was no gain or loss between April and September.

    The first response they received to what they fondly imagined was the exemplarily prompt submission of their tax returns was the issue of penalty notices charging them each £1,300. I originally hoped that I might be able to appeal against those penalties on the basis that the property had been sold on a no gain, no loss basis; but it seems from a close reading of the relevant provision in FA 2016 that it is only where the 'no gain, no loss' result derives from a statutory provision - eg a transfer between husband and wife - that the exemption from the need to file a return applies. If the result is neither a gain nor a loss simply on the basis of the arithmetic the requirement to file a return within 30 days apparently stands.

    On that basis it seems that there are no technical grounds for appeal against the penalties........but only a more general sort of 'class action' appeal on the basis that the penalties are frankly out of all proportion to the mischief perpetrated by the late submission of the return. As has been pointed out elsewhere in this thread the penalty regime to be applied to NRCGT was not given anything like the public airing that the normal SA regime received. Furthermore, it seems thoroughly inequitable to have one submission deadline for non-residents - even those within self-assessment - and quite another for residents of the UK, who of course would have had until January 31st following the end of the tax year to report details of an equivalent gain on the sale of UK property. Is there any prospect at all of HMRC giving some thought to this and retrospectively applying a more reasonable and proportionate submission and penalty regime - especially since in the great majority of disposals taking place in 2015/16 gains would have been negligible and often covered by the annual exemption? Thoughts anyone?
  • In reply to Anonymous:

    Thank you Anonymous.

    Likewise, our client was not informed by their solicitor of the requirement to file an NRCGT form on disposal of their UK property. At the point they came to us to complete their SAR, several months had already passed.

    Based upon the ICAEW technical release re ‘No Loss No Gain’, we decided to file the SAR only with a white space note referring to the reason why an NRCGT form was not filed.

    We had used a literal interpretation of the ICAEW release as I believe Julian has in his replies above.

    When the Finance Act 2016 received Royal Assent it became clear that the definition of No Loss No Gain was a lot narrower than implied in the ICAEW notice.

    We immediately filed an NRCGT but full expect that the client will be receiving a penalty notice any time now.

    Our client contacted the solicitor involved who merely came back with – ‘with all due respect, we are solicitors not accountants’

    We have further asked some of the solicitor practices that we act for and they appear to be simply unaware of the requirement to file – as such they are still not advising clients.

    We agree, the penalty regime is widely unknown and totally disproportionate to ‘the crime’.

    We have written to all of our non-resident clients who may potentially be affected by this legislation in the future.

    Residency status cannot always be determined until after the end of the tax year – one would hope that a successful appeal could be made if a late NRCGT return was filed in these circumstances.

    As in the initial query, may we ask again please if anyone can suggest a course of action in appealing against these totally unfair penalties?

    The differing deadlines for UK and non UK residents must be contrary to EU law for those now resident in other EU Countries