The non-resident capital gains tax (NRCGT) regime applies when a UK residential property is disposed of on or after 6 April 2015 by a non-resident taxpayer. The tax rates and reliefs are the same as apply to other capital gains, but the reporting mechanism is different.
In all cases the gain or loss must be reported to HMRC on a NRCGT return within 30 days of the completion of the contract to dispose of the property. This deadline has caught out many taxpayers and their advisers, as we explained in our newsletter on 29 June 2017. Where the NRCGT return is late the normal late filing penalties apply.
Now one brave taxpayer has challenged HMRC over these late filing penalties, and won!
Mrs Saunders was living in Saudi Arabia when she sold her former UK home on 15 November 2015. She made a loss after taking into account the costs of improvements and transaction fees. She was not aware she had to complete a NRCGT return until she spotted a question about it on her 2015/16 tax return. She submitted the NRCGT return on 15 August 2016 and HMRC responded with late filing penalties totalling £1300.
Saunders appealed against those penalties on the basis that it was an innocent error, there was no loss of tax, and she made a full disclosure as soon as she was made aware of the new reporting requirement. The FTT judge said it was not reasonable for a taxpayer to have to inform themselves of this new filing requirement by reading a publication posted on HMRC’s website on 6 April 2015, as was not easy to find and HMRC made no effort to inform taxpayers of its existence.
The FTT ruled Saunders had a reasonable excuse for the late filing of the NRCGT return, so discharged the penalties. The judge also raised the possibility that the NRCGT return should not be required as no tax was due, so Saunders was technically not a “taxable person” for the purposes of the NRCGT regime.
This case should provide hope to the many other taxpayers who have received penalties for late filing of NRCGT returns.