The UK tax compliance regime is replete with time limits and deadlines. In some circumstances, those time limits and deadlines are incompatible, inadequate, or unreasonable to deal with transactions and events in the real world.

However, one such circumstance was addressed in Finance (No. 2) Bill. This measure affects chargeable gains (or allowable losses) from the disposal of an asset under an unconditional contract, where that asset is conveyed or transferred over six months after the end of the tax year of the disposal by an individual, or more than one year after the end of the accounting period by a company.

What’s the problem?

The ‘tax point’ for the disposal and acquisition of an asset under an unconditional contract is generally when the contract is made (and not, if different, when the asset is conveyed or transferred) (TCGA 1992, s 28(1)). There is an exception to this general rule if the disposal arises from the receipt of a capital sum in one of the circumstances specified in TCGA 1992, s 22(2)), in which case the disposal is treated is taking place when the capital sum is received; however, such disposals are not considered here.

(a) Notifications

The normal time limits for notifying HM Revenue and Customs (HMRC) of chargeable gains (or claiming allowable losses) are:

• For individuals: within six months from the end of the tax year in which the chargeable gain arose (TMA 1970, s 7).
• For companies: within 12 months from the end of the accounting period (FA 1998, Sch 18, para 2(2)).
• For claims: by individuals, up to four years after the tax year to which the claim relates (TMA 1970, s 43(1)); or by companies, within four years after the end of the accounting period to which the claim relates (FA 1998, Sch 18, para 55).

(b) Assessments 

In addition, the time limits for HMRC to assess capital gains are:

Individuals:

• a normal time limit of four years after the end of the tax year to which it relates (TMA 1970, 34(1));
• extended to six years where a loss of tax has been brought about carelessly;
• extended to 12 years broadly where a loss of tax involves an ‘offshore matter’ or ‘offshore transfer’; or  
• 20 years where the taxpayer brought about the loss of tax deliberately (TMA 1970, ss 36, 36A)).

Companies:

• A normal time limit of four years after the end of the accounting period to which it relates;
• extended to six years where a loss of tax has been brought about carelessly; or
• extended to 20 years where the company (or a related person) brought about the loss of tax deliberately (FA 1998, Sch 18. para 46)).

It is sometimes overlooked that where a taxpayer fails to notify HMRC of chargeability to CGT (or income tax), the time limit is 20 years after the end of the relevant tax year; the normal four-year time limit, and the six-year time limit for carelessness, do not apply (TMA 1970, s 36(1A)(b)). 

Where there is a long gap between the disposal contract being entered into and the contract being performed, HMRC might have little or no time to make a tax assessment, or for taxpayers to make a claim. In particular, the perceived difficulties arise where more than four years have passed between an unconditional contract for the disposal and acquisition of an asset and the conveyance or transfer of that asset.

HMRC is apparently keen to remove potential avoidance opportunities in such circumstances.

A bit of a stretch

The result is new TCGA 1992, s 28A (‘Contracts completed after order notification period’), which relates to both chargeable gains and allowable losses. The provision applies broadly to the disposal and acquisition of an asset under an unconditional contract where the asset is conveyed or transferred after the ordinary notification period for the chargeable period of disposal and acquisition of the asset under TCGA 1992, s 28. The ‘ordinary notification period’ is the six-month (for individuals) or 12-month (for companies) notification period above.  

Where TCGA 1992, s 28A applies, the chargeable period for the following purposes is to be read as being that in which the conveyance or transfer takes place:

• individuals notifying HMRC of chargeability to CGT (i.e., the period specified in TMA 1970, s 7(1C));
• HMRC assessing CGT (i.e., the tax year to which an assessment relates for the purposes of the assessing time limits in TMA 1970, ss 34(1), 36(1) and (1A));
• individuals claiming allowable capital losses (i.e., for the tax year specified in TMA 1970, s 43(1));
• companies notifying HMRC of chargeability to corporation tax on chargeable gains (i.e., the period specified in FA 1998, Sch 18, para 2(2));
• HMRC assessing corporation tax on chargeable gains (i.e., the accounting period to which the claim relates for the purposes of the assessing time limits in FA 1998, Sch 18, paras 46(1), (2) and (2A)); and
• companies claiming allowable capital losses (i.e., for the accounting period specified in FA 1998, Sch 18, para 55).    

In cases where a claim, election, application or notice is made, given, revoked or varied, HMRC must make any consequential adjustments to the person’s tax liability for any chargeable period (e.g., treating an allowable loss as used in an earlier or later chargeable period).  

The above rule applies in relation to the disposal and acquisition of an asset under an unconditional contract entered into on or after 1 April 2023 (for corporation tax purposes) or 6 April 2023 (for all other purposes), subject to any changes prior to Finance (No. 2) Bill being given Royal Assent.

Points to note

It should be noted that the provision only relates to notification, assessment, and claims time limits; it does not affect the date the disposal is treated as taking place. In Jerome v Kelly (Inspector of Taxes) [2004] UKHL 25, the House of Lords held that (what is now TCGA 1992, s 28(1)) was only concerned with fixing the time of disposal; it did not deem the contract to be the disposal.

Furthermore, the provision applies where an asset is conveyed or transferred after the ordinary notification period relating to the tax point of the asset’s disposal and acquisition in accordance with TCGA 1992, s 28. Whilst HMRC’s focus appears to be on unconditional contracts, section 28 also deals with conditional contracts, and provides that the time of an asset’s disposal and acquisition under a conditional contact is generally when the condition is satisfied (TCGA 1992, s 28(2)).

It could be you!

The government estimates that this measure will affect approximately 70 individuals and 50 businesses in 2027/28, and 410 individuals and 130 businesses per year in the longer term. Hence, the provision should only affect a very small number of taxpayers. However, like so many aspects of tax, busy practitioners who advise clients on capital disposals will need to have at least an awareness of the new rule.

For further commentary on asset disposals under contract, see Capital Gains Tax 2022/23 at 2.8.

Mark McLaughlin CTA (Fellow) ATT (Fellow) TEP is General Editor and a co-author of HMRC Investigations Handbook (Bloomsbury Professional).