Capital Gains Tax for Non-UK Residents

As the government first announced in the 2013 Autumn Statement and subsequently enacted in the Finance Act 2015, capital gains tax (CGT) applies to non-residents disposing of UK residential property, the tax is levied on gains arising on disposals after 5th April 2015 and only applies to gains made since that date.  Before then, CGT did not apply to non-residents, other than those carrying on a trade in the UK, certain temporary non-residents, or companies subject to the 'annual tax on enveloped dwellings' (ATED) charge.

From 6 April 2020 you need to report and pay your non-resident Capital Gains Tax (CGT) and submit a non-resident Capital Gains Tax return if you’ve sold or disposed of:

• residential UK property or land (land for these purposes also includes any buildings on the land)

• non-residential UK property or land

• mixed use UK property or land

• rights to assets that derive at least 75% of their value from UK land (indirect disposals)

A ‘mixed use’ property is one that has both residential and non-residential elements. For example, a flat connected to a shop, doctor’s surgery or office.

You must report and pay non-resident Capital Gains Tax if you’re a:

• non-resident individual

• personal representative of a non-resident who has died

• non-resident who’s in a partnership

• non-resident landlord

• non-resident trustee

• UK resident meeting split year conditions and the disposal is made in the overseas part of the tax year

You must report and pay CGT within 60 days of completion of conveyance.

If you are a non-resident who has sold or disposed of UK property or land, then it is likely that you were required to submit a non-resident Capital Gains Tax return within 60 days of the date of conveyance. Land for these purposes also includes any buildings on the land.

As well as submitting your non-resident Capital Gains Tax return within 60 days you also had to pay any non-resident Capital Gains Tax due within the same 60-day period. If you miss the deadline penalties and interest may be due.

Your Self-Assessment tax return will also need to include your non-resident capital gains.

This information does not apply to companies, as from 6 April 2019 Corporation Tax rather than Capital Gains Tax will be charged on UK property or land gains for all non-resident companies.

The extension of the CGT charge goes some way to putting the UK system in line with other jurisdictions that charge tax on the basis of where the property is located rather than where the owner is resident.

What is chargeable?

You will need to work out what you need to pay if you have sold or disposed of either:

• a UK residential property since 6 April 2015

• a UK non-residential property or land from 6 April 2019

• an indirect disposal of UK land from 6 April 2019

From 6 April 2015 non-resident Capital Gains Tax was charged on direct disposals of UK residential property. From 6 April 2019, the scope of the charge was extended to cover all direct disposals of UK property and land, and indirect disposals of UK property or land.

For residential property held on 6 April 2015 and disposed of on or after that date, the 'default' position will be for the gain on disposal to be on the excess over the market value at 5 April 2015.   It is therefore recommended that valuations are carried out as soon as possible, as a valuation carried out at or near to the date is much more difficult for HMRC to challenge than one carried out years later when a property is sold.

Alternatively, an individual may elect to apportion the gain calculated by reference to the actual proceeds over actual original cost and be taxed on the proportion of ownership after 5 April 2015 compared with the total period of ownership.

If you indirectly dispose of UK property or land, or dispose of non-residential UK property or land where you owned the asset before 5 April 2019, the standard approach for calculating your gain is to use the market value at 5 April 2019. 

An indirect disposal occurs when a non-resident sells shares in a company that derives 75% or more of its gross asset value from UK land, and the person making the disposal has an investment of at least 25% in that company which holds UK land as an investment.

The gains on indirect disposals will be calculated using the value of the asset being disposed of, rather than the value of the underlying UK land.

For individuals, the CGT charge will be at 18% for basic rate taxpayers and at 24% or 28% for higher and additional rate taxpayers (24% for gains on residential property and 28% for gains on carried interest). The applicable rate will be determined by reference to the non-UK resident individual’s UK income levels for the relevant tax year. They will be entitled to the CGT annual exemption.

For non-resident trusts the CGT charge will be at 24% or 28% (24% for gains on residential property and 28% for gains on carried interest), and they too will be entitled to an annual exemption, at half the rate for individuals. This is shared between trusts with the same settlor.

Non-resident capital losses carried forward can only be used to reduce gains on other UK property and land. You cannot use these losses to reduce other chargeable gains or income.

Similarly, non-resident capital gains can only be reduced by losses that are either within the scope of non-resident capital gains or would have been in the scope of non-resident capital gains. This means that only losses arising from the direct or indirect disposal of a UK property or land can be set against non-resident capital gains.

Main residence election

Any individual is entitled to the Private Residence Relief on any gain arising on the disposal of his or her only or main residence.  Before 6 April 2015 someone with two or more residences might elect which one would attract CGT exemption on disposal. Thus, if the law were not changed, a non-resident with homes in both the UK and overseas could have expected to avoid the CGT charge simply by electing for his UK home to enjoy the exemption. The Government was initially considering simply withdrawing that election; and only the home which was really the main residence would be exempt. Instead, however, from 6 April 2015, someone not resident in the UK may only claim a dwelling in the UK to be his main residence in a particular tax year if he spends at least 90 days in the dwelling-house (or dwelling-houses in the same country) in the tax year. Similarly, a UK resident is to be only able to claim the main residence exemption on disposal of a residence overseas if he spends at least 90 days in a tax year in one or more dwelling houses in the overseas territory in that year.

Services we offer

We are pleased to be able to offer the following taxation-based services:

• A General tax consultation and/or specific tax advice;

• Tax planning for your general situation or for a specific transaction;

• Registration for National Insurance and Unique Tax Reference numbers;

• Preparation and submission of annual self-assessment returns;

• Preparation and submission of returns for overseas landlords;

• Formation of UK and offshore companies in respect to an acquisition of the commercial property and administrative and accounting services for corporate entities.

All taxation services are arranged on a fixed fee basis with the fee to be charged agreed in advance of any work being undertaken.

For all questions regarding your business in the UK and tax planning, please contact our Business Consultancy team at Law Firm Limited on +44 (0)20 7907 1460 or via email.