HMRC have are writing to taxpayers who have filed tax returns that included claims for Capital Gains Tax (CGT) Rollover relief on the disposal of residential property for tax years before 2020-21. It is unusual to be able to claim this form of relief on a residential property.
Rollover relief applies:
- Where there is a capital gain on the disposal of an asset used in a trading business and the proceeds of disposal have been reinvested in new trading assets within a fixed time period.
- It does not apply where either the old or new assets are used in an investment business, such as a residential property letting business unless the property qualifies as a Furnished Holiday Let.
- Where a gain is realised on the sale of, for example, a buy-to-let property, rollover relief cannot be claimed.
HMRC have identified taxpayers who may have incorrectly claimed the relief and who are now out of time to amend their returns for the relevant period. In such cases, HMRC will also be out of time to open enquiries into those returns unless the Discovery provisions apply. They are inviting these taxpayers to correct their returns by making a disclosure under the Digital Disclosure Facility.
- Interest and penalties may be due as a result since the tax will be overdue and incorrect returns will have been filed.
- HMRC ask for a response within 30 days. Taxpayers who are happy that they are entitled to the relief claimed are asked to email HMRC to confirm that their returns are correct.
- Taxpayers who have received such a letter are advised to check their position with respect to the relief claimed and, if necessary, take professional advice to determine if they meet the conditions for relief and to deal with correcting their position if they do not.
It is likely that in some cases if no disclosure is made and HMRC believes an erroneous claim has been made, they will raise a Discovery assessment in respect of the Capital Gains Tax due on the relevant disposal.
Useful guides on this topic
CGT: Rollover Relief
What is Rollover Relief? When a capital gain is made on the disposal of a business asset, it is possible to defer the gain by rolling it over against the cost of acquiring a replacement business asset. What are the conditions for the relief? What is a business asset?
Making a tax disclosure (Digital Disclosure Service)
A practical guide to making a tax disclosure using HMRC's online system.
CGT: Reporting when & how?
How do you report your capital gains? What return do you use?
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?