Capital gains tax - Payment methods and deadlines

Learning Outcomes

This article outlines the procedures for reporting and paying Capital Gains Tax (CGT) in the UK. It details the standard Self Assessment deadlines and the specific reporting and payment requirements for disposals of UK residential property. After reading this article, you will understand the key timelines, methods for making payments to HMRC, and the interaction between CGT payment obligations and the broader tax system, enabling you to apply these rules in practical scenarios relevant to the SQE1 assessment.

SQE1 Syllabus

For SQE1, you are required to understand the practical aspects of calculating and settling Capital Gains Tax liabilities. This includes knowing the relevant deadlines and methods for payment. Your understanding should enable you to advise clients appropriately in assessment scenarios.

As you work through this article, remember to pay particular attention in your revision to:

  • the standard deadline for reporting and paying CGT through Self Assessment
  • the specific 60-day reporting and payment window for disposals of UK residential property
  • the various methods available for making CGT payments to HMRC
  • the interaction between CGT payment deadlines and other tax obligations.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. What is the standard deadline for paying Capital Gains Tax through the Self Assessment system?
    1. 31 December following the end of the tax year.
    2. 31 January following the end of the tax year.
    3. 6 April following the end of the tax year.
    4. 60 days after the disposal.
  2. A UK resident sells a second home (UK residential property) on 1 June, completing the sale on 1 August. When must they report and pay any CGT due?
    1. By 31 January of the following year.
    2. Within 30 days of completion.
    3. Within 60 days of completion.
    4. Within 60 days of the exchange of contracts.

  3. True or false? CGT on gains from assets other than UK residential property must always be reported and paid within 60 days of the disposal.

  4. Can CGT be paid via cheque?

Introduction

Understanding the correct procedures and timelines for paying Capital Gains Tax (CGT) is essential for tax compliance in England and Wales. Failure to meet these obligations can result in penalties and interest charges. This article details the primary methods and deadlines for reporting and paying CGT, focusing on the standard Self Assessment process and the specific rules applicable to disposals of UK residential property.

Standard Reporting and Payment: Self Assessment

For most disposals resulting in a chargeable gain (excluding certain UK residential property disposals, discussed below), the liability is reported and paid through the Self Assessment tax system.

Key Term: Self Assessment
The system used in the UK for taxpayers to report their income and capital gains, calculate their tax liability, file a tax return, and make payments to HM Revenue & Customs (HMRC).

The key deadline under Self Assessment for CGT is:

  • Payment Deadline: 31 January following the end of the tax year in which the gain arose.

For example, if a chargeable gain is realised on 1 July 2023 (which falls into the 2023/24 tax year ending 5 April 2024), the CGT due must be paid by 31 January 2025.

The gain must also be reported on the individual's Self Assessment tax return, which is also due by 31 January following the end of the tax year (if filing online).

Key Term: Tax Year
The UK tax year runs from 6 April to 5 April the following year.

Worked Example 1.1

Anya sold some shares in March 2023, realising a chargeable gain above her annual exemption. The disposal occurred in the 2022/23 tax year. When must she report and pay the CGT due?

Answer: The 2022/23 tax year ended on 5 April 2023. Anya must report the gain on her 2022/23 Self Assessment tax return and pay the CGT liability by 31 January 2024.

Special Rules for UK Residential Property

Different rules apply to the reporting and payment of CGT arising from the disposal of UK residential property by UK residents. These rules were introduced to accelerate the payment of tax on property gains.

The 60-Day Reporting and Payment Window

Since 27 October 2021, UK residents disposing of UK residential property which results in a CGT liability must report the disposal and pay the estimated tax due within 60 days of the completion date of the sale or disposal.

This applies to:

  • Sales of second homes.
  • Sales of buy-to-let properties.
  • Properties inherited and not used as a main residence.

The main residence exemption (Principal Private Residence Relief - PPR) means that CGT is often not payable on the sale of a person's main home, so the 60-day rule typically does not apply in those circumstances. However, if PPR does not fully cover the gain (e.g., due to periods of letting), the 60-day rule will apply to the taxable portion.

Key Term: Completion Date
The date when legal ownership of the property transfers to the buyer, which is usually the date the purchase money is paid over and keys are handed over. This is distinct from the exchange date when contracts become binding.

Worked Example 1.2

Ben owns a buy-to-let flat. He exchanges contracts to sell it on 10 May 2024 and completion takes place on 15 July 2024. The sale results in a significant chargeable gain. When must Ben report and pay the CGT?

Answer: Ben must report the disposal and pay the estimated CGT liability to HMRC within 60 days of the completion date. Therefore, the deadline is 60 days from 15 July 2024, which falls in mid-September 2024.

Reporting Mechanism

A specific online service provided by HMRC must be used to report the property disposal and pay the tax within the 60-day window. This is separate from the annual Self Assessment tax return, although the disposal must also be reported on the tax return if the individual normally files one.

Exam Warning

Be careful to distinguish the deadlines. The 60-day rule applies only to UK residential property disposals by UK residents that trigger CGT. For other assets (shares, business assets, non-residential property, etc.), the standard Self Assessment deadline of 31 January following the tax year end applies. Non-UK residents face different reporting rules for UK property disposals.

Payment Methods

HMRC accepts CGT payments through various methods. The available options depend on the reporting mechanism (Self Assessment or the 60-day property disposal service) and the taxpayer's circumstances. Common methods include:

  • Online or Telephone Banking: Using Faster Payments, CHAPS, or Bacs. Requires the taxpayer's Unique Taxpayer Reference (UTR) for Self Assessment or a specific payment reference number for the 60-day property service.
  • Debit Card or Corporate Credit Card Online: Through HMRC's website or the HMRC app. Personal credit cards are not accepted.
  • Direct Debit: Can be set up in advance via an HMRC online account for Self Assessment payments. Not typically available for the 60-day property payment.
  • At your Bank or Building Society: Possible only if you have a specific payslip from HMRC.
  • By Cheque through the Post: This is generally the slowest method and requires a specific payslip. HMRC discourages payment by cheque.

Revision Tip

Faster Payments is usually the quickest electronic method, often clearing the same or next day. Ensure clients understand the processing times for different methods to avoid late payment penalties, especially when close to a deadline. Always use the correct payment reference.

Interaction with Income Tax Payments

For taxpayers within Self Assessment, the CGT payment deadline (31 January) coincides with the deadline for the final balancing payment for Income Tax and the first payment on account for the following tax year. Taxpayers need to ensure they budget for their total liability across both taxes. Payments made to HMRC are generally allocated against the oldest liability first unless the taxpayer specifies otherwise.

Key Point Checklist

This article has covered the following key knowledge points:

  • The standard deadline for paying CGT via Self Assessment is 31 January following the end of the tax year in which the gain arose.
  • Disposals of UK residential property by UK residents resulting in CGT must be reported and the tax paid within 60 days of the completion date.
  • The 60-day rule uses a specific online HMRC reporting service, separate from the main Self Assessment return.
  • Principal Private Residence Relief often means the 60-day rule does not apply to the sale of a main home.
  • Various payment methods are available, including online banking, debit/corporate credit cards, and (less commonly) cheque.
  • The CGT payment deadline under Self Assessment aligns with the Income Tax payment deadline.

Key Terms and Concepts

  • Self Assessment
  • Tax Year
  • Completion Date
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