Capital Gains Tax Late Penalty Fee

nottingham13

Hi

I need some advice regarding a capital gains tax late penalty. basiclly what happened was a second home was sold back in 2005 and was told incorrectly that there were no taxes to pay. But when we saw the solicitor the other day he said there were CGT to pay, we have filed a form to the tax man, but havent heard a reply as yet. We worked out the CGT tax to be around £2000, but how much penalty will we have to pay, considering it the property was sold in 2005/6? Any help please?
Thanks

fengirl_2

The maximum penalty is the £2000 - but this is mitigated according to the amount of the tax, whether it was you who owned up to it, the amount of coperation you give HMRC. I would expect 10% to 20%. There will also be interest to pay - did your accountant not recommend a payment on account to stop the interest running?

nottingham13

Thanks for your reply,

it was a !!!! up basicly between the solicitor and the person dealing with the estate on our behalf, to sort out the estate of someone who died. We were basicly mislead by the person (member of family) saying there was no tax to pay 'kind of you'll be ok', then when I looked into it it seemed there was tax to pay and when we started to ask questions direct to the solicitor, it seemed there was a !!!! up over the the people on the deeds of the house and we shiuld have paid CGT. The forms have been submitted to the HMRC and awaiting a reply. Although we sent the forms back in late January and still heard nothing? Is this normail? We have contacted our solicitor and he is looking into it for us. The problem is, this is all new to us.

We dont mind paying the CGT what we owe, we would have submitted the forms straight away if we knew there was tax to pay, but we were mislead and we should have looked it into ourselves. A lesson learnt!!!

So basicly including the CGT tax bill, late penalty fee and interest, do you think it will come to less than £4000?

fengirl_2

Many tax offices have weeks and weeks of post on hand, so don't be surprised at the delay. I would definitely make a payment on account of the tax due now because interest is racheting up daily.
It will be under £4k, I would think. You might be looking at a £800 penalty, plus interest from Jan 07 to when the tax is paid. Not sure what the current interest rate is - 8 or 9% - its certainly higher than the banks.

kitty1801

Late payment interest rates for tax can be found here http://www.hmrc.gov.uk/rates/interest-late.htm

Currently 7.5%.

jimmo

I fear the situation may be more complicated than you think.
Basics first. You recognise that you have a chargeable gain that will result in a tax liability of £2,000 for 2005/06.
One way or another you have committed an offence which means that a penalty is chargeable.
Your offence requires that an Enquiry will have to be opened. The amount of Capital Gain declared will, as a matter of course, be tested. In straightforward Capital Gains cases where there has been a purchase and sale there is nothing much to test but in your case the details you have posted suggest to me that you either inherited the property when someone died, or, perhaps your parents gifted the house to you and your siblings at some time before they died but continued to occupy the house rent free after they gifted it to you. In which case the calculation of your Capital Gain is based on the value of the property when you acquired it.
I hope for your sake I am wrong, but I fear I am right.
I am afraid that the valuation issue is the one where most people fall down on and in your case it will certainly be tested by HMRC.
So! More questions than answers, but can you explain, not the !!!! Up, but the final conclusion?
When did you actually acquire your interest in the house?
Was that by inheritance or by earlier gift with the donors continuing to occupy after the gift?
Who actually worked out the chargeable gain and the tax due on it?
Sorry if this sounds brutal, but in my working days I would be rubbing my hands with glee if your case landed on my desk because there are so many possibilities.
On the other hand, when fengirl suggested that the penalty on £2,000 tax might be £800 that’s a 40% penalty and, in my opinion, way over the top. Assuming good co-operation in the enquiry and your voluntary disclosure of the offence I personally, would not have charged you any more than 15% or £300.
However, at this stage, I am afraid I see a valuation issue which is potentially much more damaging to you than the penalty.
However, she is absolutely right in advising you to pay the £2,000 which you believe is due now.

nottingham13

Thanks for your help, it is much appreciated.

we acquired it in 2000 I think and then sold in 2005, I think the increase in price was 100k. But we only owned a small part of the property, I think 16.66%. It was a gift basicly, but they continued to live in it.

As soon as we knew there was tax to pay we got onto the solicitor straight away and he filled out the form for us. we would have filled the form on time, but we were lead to believe there were no taxes to pay. We will be cooperating fully with the HMRC, and happy to pay whats due.

Just one last question, how do we pay the amount owed to the tax man early? I dont actually know how much the CGT will be, but the solicitor said it woul;d be around 2k, so it maybe more or maybe less?

Many thanks for your help.

nottingham13

Is this the form I need for Payment on Account?

http://www.hmrc.gov.uk/sa/forms/sa303.pdf

jimmo

No it isn’t.
Sorry to see that nobody with more up to date knowledge than me has chipped in.
If you are already in Self Assessment and have a 10digit UTR, you can simply pay into your account.
If you are not yet in Self-Assessment you are probably best to make a Tax Deposit. I think this is the right link.
http://www.hmrc.gov.uk/howtopay/cert_tax_deposit.htm