Accountant Paul Hornby warns of new tax rules on second home sales
Tax rules on the sale of second homes catch people and impose fines on them, a top accountant has warned.
Last year, HMRC updated its payment deadlines for capital gains realized from the sale of a property that is not the owner’s primary residence.
Rather than allowing up to 21 months of income tax refunds, the tax authorities instead began to require the balance to be paid within 30 days.
But Paul Hornby believes that despite the new rules marking their first anniversary recently, many people are still unaware of the updated regime.
He says it was poorly communicated by HMRC – and that financial penalties await those who do not comply.
JF Hornby and Co Managing Director said: âOnce again HMRC has struck with a new tax system that is poorly communicated and too complicated to replace the perfectly adequate old system.
âMy big fear is that people still don’t know these changes have been made and that they will have to pay fines and penalties if they don’t pay within a very tight deadline.
âIn fact, this is demonstrated by thousands of second home owners and owners who have already broken the rules due to a lack of awareness of the changes.
âWith the high levels of second home ownership in Cumbria, I imagine many people have been hit with sanctions – and many more will be unless more is done to educate them about 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 during which the gain was difference of up to 21 months between the gain and the tax deadline.
But as of April 6 of last year, the rules have changed. Anyone selling a property where CGT was owed had to pay their invoice within 30 days of the sale being completed.
Capital gains tax is a tax on the profit an individual makes when selling an asset that has increased in value. The rate payable on the property is higher than on other assets
A base rate taxpayer will pay 18% on any gain made by selling a second property, while a higher or additional rate taxpayer will pay 28%. With other assets, the base rate of CGT is 10% and the highest rate is 20%.
Paul said: âThere are so many issues that HMRC seems to have either overlooked or simply ignored. Cash flow is one of them. The many and diverse circumstances in which a home can be sold – and the complexities they can bring – are another. Lack of time to calculate tax owing, declare the gain, and pay the bill is also likely to catch a lot.
âWhile I understand the sentiment behind this decision, it is frustrating that over a year later so many people are apparently ignoring the new regime. Again, HMRC acts, fails to communicate adequately and it is the taxpayer who gets caught.
âMy advice to anyone who might find themselves in this situation is to calculate the possible advance they might have to pay if they sell a second home – and make sure they have a solid plan to be able to pay these funds in full and on time. ”