HMRC is promoting its online system for reporting capital gains and losses. It looks straightforward enough, but tax advisors are saying that it’s not such a good idea to use it. Who should you believe, HMRC or your advisor?

Until recently, if you needed to report a capital gain to HMRC, you would have completed a self-assessment tax return. Now you have a choice. You can still use a tax return, or you can use a fairly new offering from HMRC: the Capital Gains Tax (CGT) real time service. It made its first appearance in 2017 and now you can access it by logging in to your Personal Tax Account (PTA) or self-assessment online.

Advantages to real-time CGT?

The advantage is mainly speed, plus it potentially saves you from having to complete a tax return if you’re not in self-assessment and don’t want to get sucked into the system. HMRC suggests using real-time CGT so you can report it earlier and forget about it. It says “You can use this service as soon as you’ve calculated your gains and the tax you owe, (assuming you know how to). You do not need to wait until the end of the tax year.” 

Other points:

• If you sell an asset early in the tax year e.g. April / May, you won't have to wait 12-months to make your submission to HMRC.
• You will need to have a PTA though.
• Your tax is paid almost immediately.

Trap. In practice it might not speed matters up. For example, if you report a gain but later find you need to complete a tax return for another reason, you’re must report the capital gain all over again on your tax return with the reference created when it was filed the first time.

Tip. If you use real-time CGT, but end up completing a self-assessment return as well, make sure you show the reference number from your online report on your return to prevent the chance of getting taxed twice.

Other disadvantages

• If you have an accountant they can’t use real-time CGT for you. Plus, they won’t know what you’ve reported to HMRC, and so won’t be able to check it or take it into account in other tax calculations.
• The biggest drawback is that it requires you to pay any CGT at the time you use the real time service. Normal CGT is paid 31 January following the end of the tax year in which you made the gain. E.g. Sale in May 18 see the tax become payable in January 2020.
• Events later in the tax year might affect the amount of CGT payable, which means you might have paid too much.
• What’s more, as the system isn’t backed up by legislation there are no safeguards. This could prove awkward where, for example, you overpay CGT, as there’s no clear procedure on how you get it refunded. Overall, our view is that real-time CGT should be avoided until it improves.

Summary:

The drawbacks to real-time capital gains tax reporting outweigh the advantages. It relies on you being able to perform the calculations yourself. CGT is complex with many relief’s that reduce tax, as well as areas that are not relevant; e.g. some clients believe your mortgage balance is part of the CGT calculation, when in reality it does not form any part of the computation. Our advice is to steer clear for now.