Calculating income for CGT mid-year?

Calculating income for CGT mid-year?

14:41 PM, 30th November 2020, About 4 years ago 11

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I am about to sell a rental property which will generate a capital gain which I will need to pay within 30 days. Can anyone advise me how to calculate my income from the property so that I can calculate what I owe bearing in mind that there are 4 months before the end of the tax year?

I am likely to complete on my property sale on 7/12/20. To calculate the CGT that I owe, the HMRC calculator requires me to input my income for the tax year 20/21 and we have 4 months to go before the end of the 20/21 tax year. I will not know my income from property until the 20/21 tax year is over.

For example, do I calculate the income at the point I make the sale? Do I use last year’s figures? Do I estimate on the basis that all rent will be paid and there are no unforeseen expenses?

I am sure that any over/underpayment will be addressed when I submit the return after April, but I would like to pay the minimum at this point.  I would like to know if there is an HMRC approved method of estimating property income mid-way through a tax year.

I am wondering if I am missing something or not explaining my dilemma clearly enough. Apologies if that is the case. However, I had assumed that anyone selling a BTL property since the 30-day rule was announced would face the same issue.

Many thanks


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10:15 AM, 1st December 2020, About 4 years ago

I’m in a similar situation, mine probably won’t complete until early 2021. My accountant offers a specific service whereby he deals with it all for me. I live in Spain so I’m going to get hammered on both sides of the Channel 😢

user_ 7167

10:26 AM, 1st December 2020, About 4 years ago

Obfuscated Data

Dennis Forrest

10:46 AM, 1st December 2020, About 4 years ago

I was in a similar dilemma when I sold a property 3 months ago. A considerable chunk of my income comes from rental income which due to Covid is even more uncertain. If all my tenants paid me in full until the end of the tax year then I would definitely be in the 40% tax bracket however it could have gone the other way and be only in the 20% tax band. I do not think we are expected to be optimistic to help out HMRC but to exercise due caution. So I adjusted my expected income to be in the lower 20% tax band and only paid CGT at 18% and will pay a further 10%, if needs be, after I have done my 2020-2021 income tax return.

Marlena Topple

11:27 AM, 1st December 2020, About 4 years ago

Silver surfer your situation mirrors mine and it is useful to hear of your approach. Thank you to you and others for your responses.

Mervin SX

18:57 PM, 3rd December 2020, About 4 years ago

Hello Silversurfer,

I think what you have done is quite a pragmatic approach. But when it comes to finalising your tax return, if you end up in the 40% income tax bracket, and you have to pay the further 10% in CGT - there is a possibility you could get hit with interest for the 10% payment, which you should have made earlier (within 30 days of sale of property).

My thinking is similar to what happens when you underestimate your income tax payment-on-account. CGT payment within 30days of sale is also a kind of payment-on-account until you finalise your tax return.

I am not an accountant, but I would not take the chance to be penalised and therefore, pay the 28% CGT (if there is a chance to be in the 40% income tax bracket) and then claim back any excess paid CGT.

Dennis Forrest

19:11 PM, 3rd December 2020, About 4 years ago

Reply to the comment left by Mervin SX at 03/12/2020 - 18:57
I am not advocating only paying 18% when you are 99% certain that you should be paying 28%. If you are in between and a good income outcome means 28% CGT and a poorer income outcome means only 18%, then where does it say on the HMRC website that if you sell your property in the fist half of the tax year, at the time of a Covid pandemic, that you should be optimistic about your full year's income and pay CGT at the higher rate. Some people who work still might be furloughed or even lose their jobs. To be quite honest it's a stupid idea of HMRC to expect people to forecast their income in advance, especially at the moment. How would you feel if HMRC changed the rules on payment of income tax and you now paid income tax in advance and if you earned more than you thought you would earn be penalised for under declaring your expected income.

Mervin SX

19:28 PM, 3rd December 2020, About 4 years ago

Reply to the comment left by at 03/12/2020 - 19:11
I am not trying to support HMRC or their views on this topic.

But payment-on-account for income tax is based on previous tax year's income. So, for CGT, if you are unsure of your income forecast in the current year, then previous year's tax bracket should be used - to be on the safe side.

I wish I am wrong - but I would rather pay the higher CGT and claim it back, instead of getting slapped with an interest on the higher CGT you should have paid in the first place!

Mervin SX

19:53 PM, 3rd December 2020, About 4 years ago

Dennis Forrest

19:57 PM, 3rd December 2020, About 4 years ago

Reply to the comment left by Mervin SX at 03/12/2020 - 19:28
In normal times this may be sensible. However we are still in the middle of a Covid pandemic and it will be after the end of this tax year before a large number of people are vaccinated. You can't use the figures for the 2019-20 tax year with certainty that these will apply to 2020-21. Following your argument through, if your income due to Covid has been badly affected during the current tax year and if you then sold a property say in August 2021 when most people had been vaccinated then it would not be sensible to use as your income for 2021-22 based on the figures for bad year you had in 2020-21.

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