Finance (No. 3) Bill (Third sitting)

Robert Syms Excerpts

Thursday 29th November 2018 Public Bill Committees

[Mel Stride]

I am happy to proceed as you suggest, Mr Howarth, and to respond briefly to the Opposition speeches later.

The clause and schedule 2 introduce a requirement on UK residents to pay capital gains tax through payments on account when disposing of residential property. They also amend a similar requirement for non-residents. Parts 1 and 2 of the schedule bring all the main rules together in one place.

For income tax, employees are taxed throughout the tax year as part of the pay-as-you-earn system. Self-employed people pay their income tax liabilities in instalments known as payments on account throughout the tax year, making a balancing payment following the end of the tax year through the self-assessment system.

In contrast, capital gains tax, which also forms part of the self-assessment system, has traditionally been available only after the tax year has ended. That means that the taxpayer may pay their capital gains tax liability up to 22 months after making the gain. As gains on residential property can be significant, we think it right that any capital gains tax due is paid soon after the property is disposed of, to ensure that any liability is paid when the taxpayer is most likely to have the funds to do so.

The changes made under schedule 2 introduce new requirements on UK residents when they dispose of UK residential property on which capital gains tax is due, such as a second home or a buy-to-let property. The first requirement is that they must make a payment on account of their capital gains tax liabilities. In most cases, that will be payable within 30 days of the contract for the sale or disposal being completed.

The second requirement ensures that the payment is properly accounted for by Her Majesty’s Revenue and Customs. Taxpayers must submit a simple tax return within the same 30-day window advising HMRC of the disposal and how much they are paying on account. How much tax is paid will be calculated according to the gain made and any unused losses and allowances that the taxpayer may offset at that time. It will work in much the same way as completing a self-assessment return. If at the end of the tax year a person has no further income tax or capital gains tax liabilities due, they will not then need to complete a full self-assessment return.

We have listened to representations made during consultation and therefore made changes to the legislation. Reasonable estimates of valuations and apportionments will be permitted without penalty when the correct amounts are unavailable in time. The changes will come into effect for disposals from 6 April 2020.

The schedule also makes two changes to an existing reporting and payment-on-account scheme that applies to non-UK residents disposing of UK property. First, it amends the scope of the scheme from 6 April 2019 to include the new interests chargeable to tax that we debated under clause 13.

[Sir Robert Syms (Poole) (Con)]

I declare an interest: I have paid capital gains tax—a horrible tax—in the past. At the moment, there is an allowance for capital gains tax, so when the form goes in, the allowance is taken off. Will the full allowance be taken off the first-stage payment, or will the allowance taken off the payment be split? Let us say that I have a £30,000 capital gain; I might well take up all my allowance in the first-stage payment and pay a slightly larger second payment, or I could simply split the whole amount. There is also a cash-flow issue.

[Mel Stride]

My understanding is that the capital allowance will be applicable when the first payment is made in full, subject to the capital gain being equal to or exceeding the allowance. If there is any adjustment on a subsequent return, I imagine—I look to my colleagues—that if the gain has been less than the capital allowance initially, or in other words there is some excess available, that might be available to any balancing payment made subsequently. The officials seem to confirm that to be the case.

[Sir Robert Syms]

The capital gain might be split between two people. This is a slightly separate, tangential question, but let us say a husband and wife sell something and the capital gain is split between them. I presume that will be two allowances and two split payments. Is there a minimum amount for someone to have to fill in a form to put in? For a small capital gain—a few hundred pounds—is there a de minimis amount or will more bureaucracy be created for rather minor payments?

[Mel Stride]

I wonder whether my hon. Friend is about to sell a house and is simply after some discounted tax advice. He is right that there will be an allowance for each taxpayer under those circumstances. The sale of the property—let us say it is a property—will occur and, to the extent that there are capital gains at or below the allowance for each of the two parties, that may be offset at that particular point.

The context of the clause is not so much the way the relief of the capital allowance works—it remains as before—but the timing of the payment of the capital gains tax should there be any. It moves from what might be a 22-month delay, given the capital gain might have been assumed at the beginning of a particular tax year but payment will not be required until completion of the self-assessment in the January following, so this is about timing rather than the mechanics of how the capital gains allowance works.

[Sir Robert Syms]

I understand that, but quite often when people sell a property, they have an amount of money they have to pay, and they put it in a bank account and sit on the money for a few months in order to sort out their tax return. Currently, they do not get much interest on the money anyway, but I wonder whether, rather than have a split payment, someone will be given a small discount for paying the whole sum in the year rather than splitting it until they do their tax return. It seems to me that people will be happy to pay, but that if there is a little incentive they might pay the whole amount.

[Mel Stride]

The provisions of the clause change the regime such that they will be required to account for the capital gains within 30 days. In a sense, this has been done by changing the rules rather than providing an incentive, I am afraid. I thank my hon. Friend for his interesting interventions.

Amendment 31 proposes that the changes come into effect only once we can guarantee awareness of them. HMRC has engaged with stakeholders on the details of the change and the draft legislation. The Members who tabled the amendment will be pleased to know that the Government published a summary of responses to their consultation on 6 July.

Amendments 32 and 33 request a review of the revenue impact of the changes, including the impact on the tax gap. The latest estimates for the revenue impact of the measure, both with the original 2019 start date and the delay to April 2020, were published at the Budget 2018.

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The TTP period is as short as possible.”

[Sir Robert Syms]

Another slight problem is that when someone is selling a property, it is not unusual for them to renovate it or do some work on it. When they report their CGT liability, they offset their legal fees, builders’ fees and other fees. The 30-day reporting window is quite tight. With my solicitor, I tend to get a bill long after I have forgotten that I owe it.

I am sure the Minister will pick up on this question when he sums up, but is the 30-day period just for reporting the possibility of CGT, or is it for reporting the actual figures? It is quite a tight period to collect all the bills, work out the profit or offset the allowance and pay the right amount, given how people do business in this country.

[Anneliese Dodds]

I am grateful for that intervention, which underlines the fact that in practice some of the calculations may be relatively complex. The response to the consultation sets out the Government’s view that in practical terms it should normally be possible for those involved to come up with the appropriate figure, but if not, an estimate would be acceptable.

While the hon. Gentleman was making his very relevant point, I was wondering whether there might be room for people to proffer a low estimate, which would obviously have a financial benefit, and then correct it later on. Will HMRC genuinely have the capacity to understand whether such an estimate was bona fide—as he says, evidence such as relevant bills may not have been fully available at the time—or whether it was intended to reduce liability? I agree that a specific reply from the Minister to that pertinent point would be helpful.

Clearly, in this case the length of time for any deferral of capital gains tax beyond the 30-day period, up to 22 months, would presumably need to be quite a bit shorter than the length of time we are talking about in relation to time-to-pay agreements. It would be helpful if the Minister confirmed that and whether his Department will be setting out criteria similar to those I have just mentioned for time-to-pay agreements to guide HMRC on this matter. Were these matters covered in the existing consultation that occurred with interested parties and just not reported in the Government’s response?

Amendment 32 would require a review of the effects on public finances if the provisions in this schedule were introduced from 6 April 2019. It would require the Secretary of State to

“lay a report of that review before the House of Commons within six months of the passing of this Act”.

We believe that the amendment is necessary—first, because from what I can see there are two effective start dates in the schedule and it is quite unclear why; and secondly, because we need to understand the anticipated impact of the measures to a greater degree than is surely possible with the information supplied to us.

We have already had a little discussion about the payment on account system. Arguably, it enables the smoothing of outgoings for individuals and individual businesses, and of revenue for HMRC, so to that extent it can help with financial planning. However, we are surely talking about quite a different process when it comes to the payment of capital gains tax. We are not talking about someone who is self-employed, who is very unlikely to have payment just in one big lump sum; it is likely to be in a number of different sums or continuous payments.

One could argue there is more of a rationale for payment on account in those regards than potentially here, aside from the fact that these measures will ensure more security of revenue for HMRC. Surely they could potentially have a revenue impact because, as the hon. Member for Poole mentioned before, without this 30-day limit individuals could be keeping that sum, effectively earning interest on it and paying it later.

I appreciate what was said about the interest rate being low now, but that will not always necessarily be the case. Surely it would be useful for us to have a review on the effects on public finances of these provisions, as requested in amendment 32. Amendment 33 from the Scottish National party pushes in the same direction, so we also support that.

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[Mel Stride]

If my hon. Friend writes to me about that consultation, I will of course be very happy to respond to her.

The hon. Member for Oxford East also raised the possibility of someone not filing the information as a consequence of the shortening of the time period. Part of the purpose of the change is to concentrate the requirement to file the paperwork at the time the asset is sold, rather than leaving it in the distance. Where that requirement gets pushed into the distance, there is a possibility of people forgetting about it.

One should also bear in mind that, in the case of a property, a number of professional advisers—particularly solicitors—will be involved in the transaction. One would expect them, in the natural course of events, to discuss the tax implications of the transaction with the individual concerned.

[Sir Robert Syms]

If someone has a number of properties, it is important that HMRC knows which they elect as their main home. If, as in the case my hon. Friend the Member for Chelmsford mentioned, that has not always been their main home—if it started off as a second home or they rented it out, for example—the normal approach is to apportion certain years in the property for which they are liable for capital gains tax. I am still a little concerned about the 30 days. I have on occasions gone back through all my files to see when I told HMRC or my accountant, and it is possible to get into a long, involved thing about what percentage of a property is liable for capital gains tax.

I am just a bit concerned that the window of opportunity is too small. There are examples of people having multiple capital gains tax liabilities because they bought themselves more than one home in a year. Getting all the information and the bills together sometimes takes a little time—it can be easier to do that during the year-end process. I can understand the Treasury’s wanting to get income in quickly, and many people would welcome that, but 30 days is pretty short if someone has to go through their strong boxes at home or contact their accountant or solicitor, who are often repositories of information. I hope the Minister thinks about this issue a little more.

[The Chair]

Order. I do not want to discourage interventions, because they are a useful way of eliciting information, but some of the interventions we have heard might have been better conducted as proper speeches. People should consider whether they might be better making a fuller case in a speech rather than an intervention. I say that not to discourage interventions but, I hope, to provide a bit of helpful guidance.