Capital Gains tax on 2nd home - dispute with HMRC

splitscreenvan

Hi Folks. 

I wonder if anyone can advise the best approach to a rather unique issue (or at least I think it is).

We had a 2nd home for a few years, we bought it, did a load of renovations, then we let it out as an Airbnb for a while, before selling it in the spring of last year. We assumed that we would declare the capital gain on our tax return as normal and pay accordingly.

Apparently however the rules changed in April 2020 and from that date you had to pay any cgt on a 2nd home within 30 days (this was extended to 60 days in Oct 2021).

Unfortunately we had no idea this was the case, more importantly neither did our accountant, or our solicitor, so we didn't pay anything immediately thinking we had months to add this to our tax return. 

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

So, we have appealed and filed a complaint under GDPR, I am mighty annoyed that such confidential letters can be sent to such an old address! 

The appeal however is grindingly slow, and we had already ran up interest charges which are increasing by the day. If we try to call HMRC they acknowledge the appeal but say it was our responsibility to be aware of the tax rules - this doesn't seem reasonable given our past history of paying on time, and their own error, and the fact neither our solicitor or accountant were aware - I'm not suggesting they needed to run adverts on the TV for this change but surely the industry professionals should be kept up to date? 

I genuinely don't know what to do now. Should I wait it out? Or should we pay to stop the interest building? I can't help but feel if we pay that will be the end of it in terms of us getting any money back.

The GDPR thing is particularly galling, if it was a private company treating customer data like this they'd be fined mercilessly. 

Any advice, opinions or general musings appreciated!

Kind regards
splitscreenvan

Hoenir

splitscreenvan said:

Apparently however the rules changed in April 2020 and from that date you had to pay any cgt on a 2nd home within 30 days (this was extended to 60 days in Oct 2021).

Unfortunately we had no idea this was the case, more importantly neither did our accountant, or our solicitor, so we didn't pay anything immediately thinking we had months to add this to our tax return. 

Did not know or you didn't ask/consult them. Very different scenario's. 

they acknowledge the appeal but say it was our responsibility to be aware of the tax rules

I've never known it to be any different. Decades ago it was drummed into me that when it came to the HMRC. Ignorance is no excuse. As tax legislation frequently changes. 

eskbanker

splitscreenvan said:

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

What did these letters actually say and when were they sent, i.e. were they after payment was already overdue?

splitscreenvan

[Deleted User] said:

splitscreenvan said:

Hi Folks. 

I wonder if anyone can advise the best approach to a rather unique issue (or at least I think it is).

We had a 2nd home for a few years, we bought it, did a load of renovations, then we let it out as an Airbnb for a while, before selling it in the spring of last year. We assumed that we would declare the capital gain on our tax return as normal and pay accordingly.

Apparently however the rules changed in April 2020 and from that date you had to pay any cgt on a 2nd home within 30 days (this was extended to 60 days in Oct 2021).

Unfortunately we had no idea this was the case, more importantly neither did our accountant, or our solicitor, so we didn't pay anything immediately thinking we had months to add this to our tax return. 

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

So, we have appealed and filed a complaint under GDPR, I am mighty annoyed that such confidential letters can be sent to such an old address! 

The appeal however is grindingly slow, and we had already ran up interest charges which are increasing by the day. If we try to call HMRC they acknowledge the appeal but say it was our responsibility to be aware of the tax rules - this doesn't seem reasonable given our past history of paying on time, and their own error, and the fact neither our solicitor or accountant were aware - I'm not suggesting they needed to run adverts on the TV for this change but surely the industry professionals should be kept up to date? 

I genuinely don't know what to do now. Should I wait it out? Or should we pay to stop the interest building? I can't help but feel if we pay that will be the end of it in terms of us getting any money back.

The GDPR thing is particularly galling, if it was a private company treating customer data like this they'd be fined mercilessly. 

Any advice, opinions or general musings appreciated!

Kind regards
splitscreenvan

1. The CGT needs to be paid.  Presumably you are not appealing that.

2. The interest will always have to be paid.  So paying your CGT sooner will mitigate that.  If you engaged someone to do your tax return or give you tax advice on this transaction then you could also them to reimburse you.  That doesn't stop HMRC charging you interest.

3. I assume you have appealed the penalty or penalties (£100 for being late, 6 monts late, 5%/£300 and you might even 12 month late, another 5%/£300).  What reason did you give for your reasonable excuse?

I'm not up to speed with FTT decisions on CGT return penalties (I don't recall reading any so there may be none) but I know that some people had them for non-resident capital gains tax returns in the past and won.  You might as well try and have your day in court.  But remember that if you had a reasonable excuse it ended when you knew what the position was.  So if you still haven't done the return / paid the tax then you will still be liable for penalties.

As far as professions go, I would expect that a conveyencer and someone who does tax returns would know.  Whether a common-or-garden accountant or solicitor would is anyone's guess.  

We’re not appealing the CGT, we’re appealing the interest and penalties. 

Our tax accountant and conveyancer were unaware of the change in law. Whilst I appreciate that it’s our responsibility to be aware of the tax law I do feel we did what we could - I don’t think it’s reasonable to expect people to study changes to the tax laws just in case it applies to them at some point. 

splitscreenvan

Hoenir said:

splitscreenvan said:

Apparently however the rules changed in April 2020 and from that date you had to pay any cgt on a 2nd home within 30 days (this was extended to 60 days in Oct 2021).

Unfortunately we had no idea this was the case, more importantly neither did our accountant, or our solicitor, so we didn't pay anything immediately thinking we had months to add this to our tax return. 

Did not know or you didn't ask/consult them. Very different scenario's. 

they acknowledge the appeal but say it was our responsibility to be aware of the tax rules

I've never known it to be any different. Decades ago it was drummed into me that when it came to the HMRC. Ignorance is no excuse. As tax legislation frequently changes. 

Again why would I ask? I would expect them to tell me if they knew of the change, both said they had never come across it before. 

mybestattempt

splitscreenvan said:

Hi Folks. 

I wonder if anyone can advise the best approach to a rather unique issue (or at least I think it is).

We had a 2nd home for a few years, we bought it, did a load of renovations, then we let it out as an Airbnb for a while, before selling it in the spring of last year. We assumed that we would declare the capital gain on our tax return as normal and pay accordingly.

Apparently however the rules changed in April 2020 and from that date you had to pay any cgt on a 2nd home within 30 days (this was extended to 60 days in Oct 2021).

Unfortunately we had no idea this was the case, more importantly neither did our accountant, or our solicitor, so we didn't pay anything immediately thinking we had months to add this to our tax return. 

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

So, we have appealed and filed a complaint under GDPR, I am mighty annoyed that such confidential letters can be sent to such an old address! 

The appeal however is grindingly slow, and we had already ran up interest charges which are increasing by the day. If we try to call HMRC they acknowledge the appeal but say it was our responsibility to be aware of the tax rules - this doesn't seem reasonable given our past history of paying on time, and their own error, and the fact neither our solicitor or accountant were aware - I'm not suggesting they needed to run adverts on the TV for this change but surely the industry professionals should be kept up to date? 

I genuinely don't know what to do now. Should I wait it out? Or should we pay to stop the interest building? I can't help but feel if we pay that will be the end of it in terms of us getting any money back.

The GDPR thing is particularly galling, if it was a private company treating customer data like this they'd be fined mercilessly. 

Any advice, opinions or general musings appreciated!

Kind regards
splitscreenvan

I'm assuming you have made a formal appeal against a late filing penalty on the grounds you have a 'reasonable excuse' for the lateness and HMRC have sent you their written 'view of the matter' explaining why they do not accept that you have a reasonable excuse and that you can ask for the matter to be reviewed or refer your appeal to tribunal.

It is very unlikely that lack of knowledge would be accepted as a reasonable excuse for lateness.

However, the fact that there has been a problem with your correct address may mean the validity of the penalty notice can be challenged if it was sent to a previous address and you had updated  HMRC with your current address before the penalty notice was issued.

splitscreenvan

eskbanker said:

splitscreenvan said:

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

What did these letters actually say and when were they sent, i.e. were they after payment was already overdue?

Yes they were sent after the payment was due, but to the wrong address, hence the GDPR issue. 

eskbanker

splitscreenvan said:

eskbanker said:

splitscreenvan said:

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

What did these letters actually say and when were they sent, i.e. were they after payment was already overdue?

Yes they were sent after the payment was due, but to the wrong address, hence the GDPR issue. 

You're quite entitled to point out a fault in their data management processes but if this was after payment was due then obviously the penalties had already applied by then - did they definitely only notify your accountant much later on, rather than doing so in real time?

saajan_12

What are the relevant dates here? 
* When was the property sold? 
* When was the tax paid (presumably following the end of the tax year)? 
* When was the first letter from HMRC?
* When did you / accountant get the notification? 

Also what are the amounts in question - 
* Has the CGT been paid?
* How much interest is being demanded to date?
* How much penalties are being demanded to date? 

Ultimately the CGT would need to be paid, as well as some interest if it was late. You might argue that if they had sent the letter to the right address, then you would have known sooner and not incurred the interest between that date and when you finally found out. That's tenuous though, as its always still up to the tax payer to know, and you gained some interest (albeit at a different rate) by having that money in your pocket for that much longer. 

splitscreenvan

eskbanker said:

splitscreenvan said:

eskbanker said:

splitscreenvan said:

We found out when our accountant received notification from HMRC that they had sent me (not my wife) 2 letters and I had ignored them. When I asked to see those letters they had an address on that we hadn't lived in for 17 years (we have in fact moved twice since then). In that 17 years we have paid every single tax bill on time without fail, and have had lots of correspondence with HMRC using our correct address. 

What did these letters actually say and when were they sent, i.e. were they after payment was already overdue?

Yes they were sent after the payment was due, but to the wrong address, hence the GDPR issue. 

You're quite entitled to point out a fault in their data management processes but if this was after payment was due then obviously the penalties had already applied by then - did they definitely only notify your accountant much later on, rather than doing so in real time?

Yes, the accountant was only made aware when she was filing my self assessment return (as it included the cgt on the sale of the property).

splitscreenvan

It sounds as though the general opinion is that we're going to lose this appeal. I do feel it's unreasonable to expect members of the public to keep track of changes to tax law in this manner, but thats almost certainly what the law will state.

The GDPR thing I will push as hard as I can as a point of principal. I ran a business until recently, if we had done this the penalties would have been significant and a customer could have very reasonably expected compensation had we treat their data so frivolously. 

For the record, there is no doubt our details were up to date with HMRC. Both myself and my wife have filed and paid our tax returns on time without fail our entire lives (I'm in my 50s, so I have a track record).