Nisha Patel looks at recent capital gains changes affecting non-UK residents.
Over the last few years, tax on the sale of a property held by a non-UK resident has undergone a series of reforms.
Historically, non-UK residents have not been liable to capital gains tax (CGT) on the disposal of assets situated in the UK. In 2013, this changed; most non-UK resident companies became liable to CGT on the sale of UK residential property.
In Finance Act 2015, the government introduced new legislation known as ‘non-resident capital gains tax’ (NRCGT). From 5 April 2015, non-UK resident individuals and trusts also became liable to CGT on the disposal of residential properties situated in the UK. However, no tax was chargeable on non-residents who sold companies that owned UK residential properties. Nor was tax due on the sale of UK commercial property.
More recent changes
With effect from 6 April 2019, NRCGT was extended to cover all properties, including commercial property and land. At the same time, NRCGT for non-resident companies was replaced by a liability to corporation tax.
Furthermore, from 6 April 2019, NRCGT is due on indirect disposals of UK land and property. Therefore, a sale of shares in a ‘property-rich’ company (i.e. those companies that own UK land and property) will be charged NRCGT if:
- The company owns at least 75% of its value in UK land (e.g. if the company is worth at least £1 million and owns shops in the UK worth £800,000 and investments worth £200,000, the shareholders will be taxable under the new rules);
- The shareholder owns at least 25% of the company’s shares (or with family members own at least 25% of the company’s shares);
- The shareholder has met the 25% test (above) in the previous two years.
Who needs to submit a NRCGT return?
If a non-UK resident sells land or property in the UK either directly or indirectly, they will be required to complete a NRCGT return. Non-UK residents can be:
- Individuals;
- A personal representative of a deceased non-resident individual;
- Trustees;
- Landlords;
- Those within a partnership;
- UK residents who become a non-resident part way through the year and then sell the land or property at that point in time;
- Close companies (until 6 April 2019).
Calculating NRCGT gains or losses
There are several ways to calculate NRCGT depending on when the land or property is sold or disposed of. If a UK residential property is sold after 6 April 2015, the CGT can be calculated using the proportion of the total gain that arose from 6 April 2015 and using a rebased value as at 5 April 2015.
Alternatively, you can use a straight-line time apportionment of the total gain. Or you can use a retrospective computation incorporating the full gain or loss arising since the acquisition of the property.
If a non-UK resident individual sells a non-residential land or property after 5 April 2019, the capital gains are calculated with reference to the April 2019 market value. Gains before that date will not be taxable. Owners can opt-out of rebasing if there has been a loss on the property and rebasing does not reflect that. In this situation, they can calculate CGT in the normal way.
Rates of NRCGT
The NRCGT rates for individuals are 10% and 20% on everything except residential property. It is 18% and 28% on residential property, after taking into account the annual exemption allowance (£12,000 for 2019/20) and principal private residence (PPR) relief, if available.
The NRCGT rate is 19% for companies. This came into effect from 6th April 2015 for residential properties and from 6 April 2019 for gains on all other UK land and property.
For trustees, the NRCGT rate is 20% or 28% (after deducting half the individual exemption of £6,000 for 2019/20, if available).
Submitting a return and paying the tax
Normally, CGT is paid as part of the self-assessment regime. Any tax due will be payable by 31 January following the end of the tax year.
However, for non-UK residents, they must notify HMRC within 30 days of the disposal of a UK residential or commercial property. This can be done on an NRCGT return, along with the payment of any tax due. HMRC has offered one exception to this rule. If you are already within the self-assessment regime, you can either pay when you submit your return or pay at your normal self-assessment payment due date.
Filing a NRCGT return is required regardless of whether a gain or loss is made. Reporting is not mandatory, however, if the disposal made was ‘no gain/no loss’ or no chargeable gain was made on the grant of an arms-length lease to an unconnected person for no premium. In other words, no NRCGT return is required when there is a gift or transfer between husband and wife. Gifts and sales of non-UK shares by a UK resident but non-UK domiciled individual who claims the remittance basis is also exempt from reporting NRCGT. Finally, the sale of an individual's main residence is usually exempt from CGT due to PPR relief.
Penalties will arise on individuals who fail to submit a return in time. Reporting a disposal for NRCGT can be done online (see https://online.hmrc.gov.uk/shortforms/form/NRCGT_Return).
Each disposal must include a computation of gains or losses and any future amendments that may occur. Figures can be amended up to 12 months after the self-assessment filing date, such as where an estimated figure was used in the original return.
Changes for non-UK resident companies
Prior to April 2019, losses were ring-fenced and could not be used against ATED related gains. ATED (annual tax on enveloped dwellings) was potentially in point if the ownership of UK residential land or property was within a corporate wrapper. In other words, a property that is owned completely or partly by a company.
Where a property is disposed of and is within the scope of ATED, the gain accrues from 5 April 2013 and is taxed at 28%. Between April 2015 and April 2016, the disposal can be taxed under both ATED-related CGT or NRCGT. In most cases, ATED will take precedence.
From 6 April 2019, the gain will be subject to corporation tax only. ATED-related CGT no longer applies. This includes collective investment vehicles and life assurance companies. Non-UK resident companies are required to register with HMRC in order to submit corporation tax returns.
Non-UK resident companies are liable to corporation tax on gains arising from both direct and indirect disposals of UK property. The relevant company must register for corporation tax and submit a return form CT600. Tax will be due three months and 14 days after the disposal.
Non-resident landlords
Corporate non-resident landlords (NRLs) will still be subject to income tax on rental business profits in 2019/20 and if disposals have been made NRCGT will also be potentially payable. They will be required to submit two tax returns:
- A form SA700 for rental profits;
- A form CT600 to report chargeable gains.
As most properties sold in 2019/20 will have a rebased value as at 5 April 2019, there will most likely be no gain to be taxed in 2019/20.
With effect from 6 April 2020, this all changes and corporate NRLs carrying on a UK property rental business will become within the scope of corporation tax. Along with the changes to NRCGT, from 6 April 2020, corporate NRLs will be fully within corporation tax for both UK property income and gains.
Split year non-UK resident
There are different rules for individuals who are temporarily non-UK resident during a tax year. If an individual meets the temporary non-resident rules the portion of gain not charged to NRCGT will come within the scope of CGT when they return to the UK. If an individual does not meet the temporary non-UK resident rules, there will be an additional CGT charge for the earlier disposal when they return to the UK.
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