Thousands of taxpayers who sold property in 2018/19 will receive letters from HMRC suggesting they may owe tax. If you get one, how should you respond?

HMRC’s suspicions. HMRC is in the process of sending letters to thousands of taxpayers who sold residential property in 2018/19. According to reports, an HMRC representative said, “We are writing to customers who we believe have sold a property which may have given rise to a capital gains tax (CGT) charge, but who did not tell us that they had any tax to pay” . They also said that HMRC wants to give taxpayers the chance to review their tax position before taking further action.

Fact or guesswork? In reality HMRC can’t have sufficient information for it to be sure that CGT is owed. The information it has will show that a property has been sold, and that according to its records it was not the taxpayer’s main home. However, its records could be out of date.

Don’t panic but take action. If you’ve received a letter you should respond as soon as possible. That way you can avoid an investigation or demands for information from HMRC using its special powers.

o    if you submitted a tax return for 2018/19, check whether you should have reported the property sale; refer to page 1 of the SA108 notes (see The next step ). If you should have, you can correct your tax return. The normal deadline for doing this is 31 January 2021

o    if you weren’t asked by HMRC to complete a 2018/19 tax return say why you believe you weren’t required to report the sale or provide a calculation of the gain you ought to have reported.

Tip. If you’re sure CGT wasn’t payable on the property sale, HMRC can’t do any more than slap you on the wrists for not reporting it. It can’t charge a penalty. If you’re not sure how to work out if there was a taxable capital gain or you now believe you owe tax, you should acknowledge HMRC’s letter straightaway. We suggest you also ask an accountant for advice as soon as possible. If tax is payable HMRC can charge a penalty which will be lower if you respond quickly and provide the information needed.

Check HMRC’s SA108 notes to see if you should have reported the transaction. If so, and you submitted a tax return for 2018/19, you have until 31 January 2021 to amend it. If in doubt ask an accountant for advice.

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