Capital Gains Tax for non-UK Residents disposing of UK residential property

It has been just over a year since large capital gains tax (CGT) changes were introduced for non-UK residents disposing of UK situated residential property, and further to recent requests for assistance from clients and contacts, I thought I’d recap the new rules.

With effect from 5 April 2015, essentially, if you are non-UK resident and dispose of a UK residential property, you must report this to HM Revenue & Customs within 30 days of conveyance.

The new rules will apply and a return will be required even if; you have no tax to pay; if a loss has been made; or even if you are already registered with HM Revenue & Customs for Self Assessment or Corporation Tax.

You also have to pay any non-resident CGT liability within 30 days of conveyance. However, exceptions may apply where you have an existing relationship with HMRC. A common example of this is where an individual completes a Self Assessment tax return, and in this case, an individual could choose to either pay the CGT within 30 days or conveyance, or they could choose to defer payment until their usual tax payment deadline – i.e. 31 January.

To report a disposal, a return must be completed and submitted along with a computation showing how the gain or loss has been calculated. A separate return is required for each disposal, and for property that is jointly owned, each owner must inform HMRC separately, within the 30 day time limit.

As with most HMRC deadlines, there are penalties for missing the submission due date, initially a £100 late submission penalty, which may increase depending on the lateness of submission.

Calculating your gain or loss on the disposal of the residential property.

There are three methods to calculate the gain or loss under these new rules, and you can chose which method to use, which may lead to significant reductions in the potential CGT liability:

  • You can calculate the gain over the entire ownership period (potentially useful to maximise a capital loss)
  • You use the market value as at 5 April 2015 as your deemed cost of the property – so any chargeable capital gain made on the disposal represents the gain made only post 5 April 2015. (known as rebasing, which has the effect of providing a tax free uplift in the cost of the asset)
  • Finally, you can work out the gain over the entire period of ownership, and then calculate the proportion of the gain that has been generated since 5 April 2015. This is known as the time apportionment method and (depending on specific conditions) often provides the lowest overall chargeable gain.

You will see from the above calculation methods that the 5 April 2015 is a key date in respect of the value of the property. It is the taxpayer’s responsibility to have an accurate valuation of the property (and is important when using the rebasing or time apportionment methods of calculating the gain). Therefore, we strongly recommend a professional valuation of the property as at 5 April 2015 and to keep & maintain evidence of your valuation, as you may not dispose of the property for many years, and it will be required in the future.

Once the calculations have been prepared, the return can then be completed and submitted to HM Revenue & Customs via an online form and electronic submission.

For further information on non-UK residents disposing of UK residential property, or for assistance in completing and submitting the necessary returns to HM Revenue & Customs, please contact your local Perrys office.

Article written by Gareth Bridgland