HMRC Nudge Letter - Foreign Income - How To Respond?

masonic

spider42 said:

There isn't, and never has been, any requirement to notify HMRC merely because your disposal proceeds exceed 4xAE (unless you have received a notice to complete a self assessment return).

So the following is wrong?

https://www.rossmartin.co.uk/private-client-a-estate-planning/capital-gains-tax/3350-reporting-capital-gains

If so, then the OP is off the hook, other than possibly receiving a request for calculations after ticking the "my gains are covered by allowances" box and returning the form to HMRC.

spider42

In a word, yes, it is wrong.

spider42

Just to demonstrate that that website is erroneous, it even contradicts itself!

If you follow the flowchart for post 6 April 2020 disposals, with proceeds > 4 x AE, then the flowchart tells you need to "Register for Self Assessment or use the real-time CGT reporting service (see Overview)". And the Overview then tells you the exact opposite of the flowchart, namely "If you are not registered for SA, you do not need to report gains if there is no tax payable."

masonic

spider42 said:

Just to demonstrate that that website is erroneous, it even contradicts itself!

If you follow the flowchart for post 6 April 2020 disposals, with proceeds > 4 x AE, then the flowchart tells you need to "Register for Self Assessment or use the real-time CGT reporting service (see Overview)". And the Overview then tells you the exact opposite of the flowchart, namely "If you are not registered for SA, you do not need to report gains if there is no tax payable."

Good point, I hadn't noticed that branch of the chart. It's a bit worrying that a group of tax consultants preparing resources for accountants and advisers could get this so wrong. This thread could have ended pages ago if it wasn't for the information on this website.

dales1

spider42 is correct.

The estimable Bowlhead scotched all this argument 5 years ago, on this very forum.

I took a copy of it all before MSE (in their absence of wisdom) seem to have disposed of not only the relevant post but also this most valued of contributors.

Here is an extract:-

#12 IanManc

Not only do you have to report all disposals when you've disposed of assets worth four times the allowance; you also have to report all your disposals if you have made gains over the allowance of £11300, even if you've got losses which take your net gains below £11300 so you don't owe any tax.

I spoke to a tax inspector about this and he said that they use non-reporting of disposals, even when no tax is owed, as evidence of someone who wasn't telling them what the law says they need to be told about, and so indicating that the person might be of further interest to them and worth an investigation.

 #18 Bowlhead99

 24th Aug 17, 5:25 PM

“Fortunately, I don't have to provide a self assessment nowadays after the HMRC told me I did not need to. Originally posted by OPENSPACES ”

Then in that case they didn't 'forget' about the "four times" limit. The four times limit is relevant if you have to fill out a tax return, because then you have to follow the rules for properly completing a tax return, which include disclosing your sales proceeds and gains/losses where the proceeds are >4x that year's exemption even if the gains are under the exemption and you're not bothered about claiming the losses.

However, if you don't have to fill out a tax return, you don't need to tell them about your gains and losses if the gains are less than the exemption and you don't want to claim any losses.

#23 Previn

Re the 4* reporting threshold... This link suggests it has to be reported whether self assessment is completed or not....
https://www.gov.uk/capital-gains-tax/work-out-need-to-pay

 #24 bowlhead99

25th Aug 17, 8:23 PM

It does suggest that, yes. However, the Gov UK website is dumbed down in the interests of simplicity and at the end of the day, HMRC would prefer to receive more information than less, so it's in their interest for such pages to make readers err on the side of caution. Whereas, bowlhead99 is rarely wrong. 

If you go back to the underlying law:

Taxes Management Act 1970 section 8 gives HMRC broad powers to require people to do a tax return.

Taxation of Chargeable Gains Act 1992 refers to reporting limits in section 3A - which you won't find in the original version of the 1992 act on legislation.gov.uk, but it was added after Section 3 by the Finance Act 2003 (Schedule 28, Part 1, "Reporting Limits", which is on that site).

This states that where in the case of an individual:

(a) the amount of Chargeable Gains accruing to him in any year of assessment does not exceed the exempt amount for that year, and
(b) the aggregate amount or value of the consideration for all chargeable disposals of assets made by him in that year does not exceed for times the exempt amount for that year,

a statement to that effect is sufficient compliance with so much of any notice under section 8 of the Management Act as requires information for the purposes of establishing the amount in which he is chargeable to capital gains tax for that year.

So, where that takes you, is *if* HMRC have told you they want you to report your reportable activities, income, deductions etc etc for a particular period for whatever reason, it is a valid defence for the Chargeable Gains aspect of it to simply confirm in writing or through a signed return that you didn't have gains over the exempt amount and that you didn't have disposals valued at over 4x the exemption. If you sign off a full self assessment return and leave the CG pages blank, that's what you're deemed to be doing. If you cannot make that statement (eg you *do* have disposals over 4x) then you would need to comply with their request in full and disclose the disposals and related gains/losses on the return like it tells you in the instructions.

If HMRC have *not* told you that you must do a return for the period, you don't need a defence to the request to give all your proceeds and disposals information, because there is no such request. There is just the standard obligation to inform them that you have taxes which you owe (e.g. due to gains over the exemption). So, in the absence of a demand for you to deliver a tax return you don't need to worry about some "threshold" over which you would tell them about things that didn't generate a tax bill, because they are *not* asking for that information. Only by asking you to do a tax return would they be asking for that information.

In the OP's case he was explicitly told they weren't demanding him to do a tax return. So, if he doesn't have taxable gains over threshold there is no need to file any returns, reports or letters stating the gross amounts of his disposals, because as someone who has not been requested to do a return, he's not obligated to give it.

If he was someone like me, who has been asked to do a tax return, he would have to either
i) report the disposals activity (if over 4x or leading to a non exempt gain) or

ii) leave it blank to show he was under 4x and didn't have any gain not covered by the exemption.

But if he wasn't asked to do that, he doesn't need to volunteer that information if it is all exempt.

The below HMRC CGT manual page discusses this, and is consistent with the above

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg20220

That page from the manual confirms what I said, i.e.

i) a person may be required to supply information about chargeable gains, HMRC's authority for this is in TMA 70/ S8.

ii) then from TCGA92/ S3A, *if required to make a return* an individual need not make a detailed return of chargeable gains where aggregate consideration for all disposals (except exempt assets and spouse/civil partner transfers) are over 4x exempt, and the gains before deducting losses do not exceed annual exempt amnt.

If HMRC have not exercised their right to require you to make a return, and you don't have a non exempt gain to report and you don't want to declare any losses (to offset current year gains in excess of exemption, or to carry to future years) there is nothing to do.

I just love the "whereas" phrase in the middle of Bowlhead's explanation !

ivormonee

ii) then from TCGA92/ S3A, *if required to make a return* an individual need not make a detailed return of chargeable gains where aggregate consideration for all disposals (except exempt assets and spouse/civil partner transfers) are over 4x exempt, and the gains before deducting losses do not exceed annual exempt amnt.

This is something new for me. In my earlier posts in this thread I commented that gains for the tax year are a potential trigger in reporting requirements, depending on whether or not they exceed the annual exemption. But this was on the basis of the year's net position of gains (after offsetting any capital losses for that year). The above post seems to suggest that the gross figure of gains is the one that is tested for reporting purposes. So, in the OP's case, for 2019/20, his gains were, let's say £1k (from money market fund disposals) but we know his losses were about £2k from his stock disposal. So for that year, his capital gains/ losses are a net loss of £1k. This would not then require the testing of >4x annual CGT exemption (if under self-assessment, which we know the OP is not, but for anyone reading this that is it's useful to have a complete picture). However, if we are to consider capital gains on their own for the reporting requirements test, then the £1k would then (for those under SA) require a check of total disposals against the >4x CGT allowance. In the OP's case, as he is not under SA, this would not be a requirement either way as the legacy bowlhead posts explain.

In reference to the OP's comment (I can't seem to find a way to add more than one quote) Degiro's website information does not seem to suggest that a customer has to have money in money market funds by virtue of not having a banking licence. They simply operate as an electronic money institution (or they did at the time of the tax year in question but subsequently received a banking licence) but they would still hold cash as cash. I am therefore not clear on the money market conversions and redemptions as in their faqs they say that customers' cash is held in currencies of their choosing in segregated, ring-fenced accounts, as cash. So that takes me back to one of my earlier posts where I question the validity of the broker designating the transactions relating to these as "disposals". Perhaps they are disposals in the everyday sense of the word rather than in respect of capital gains tax reporting. Regardless, as the OP is not under SA, it would not give rise to any obligation to report. If the OP had been under SA, then I am not sure if the £1k gains, before allowing for £2k losses, would be the correct treatment to answer the question "did you make gains for the year?" as, technically, the OP did not; he made an overall loss of £1k after factoring in the £2k losses on the disposal of stock. Unless paragraph one applies, as I am not all that clear whether it's gains before offsetting the year's losses or after that is the correct treatment.

I was under the impression that the legendary bowlhead had returned as a re-incarnation, for a while at least.

masonic

He went "underground" for a while, but didn't survive a few of his posts being reported again.