Historically, capital gains tax (CGT) has been a tax that only applies to UK residents. However, changes have been taking place since 2013 which now mean that non-UK residents can be taxed on the disposal of UK real estate. Real estate owners need to be aware of their new obligations as HMRC is already charging penalties for unpaid tax and late returns.
The Government has just updated its guidance on what non-residents need to do when they dispose of UK property. This is timely as there are now a number of different rules that apply depending on particular circumstances.
In general, non-residents disposing of any UK residential property have been required to file a non-resident capital gains tax (NRCGT) return within 30 days of completion since 6 April 2015. Tax is also generally payable at the end of the 30-day period unless the non-resident owner already files self-assessment tax returns. Failure to file the relevant NRCGT return within the time limit leads to a late filing penalty. Interest and penalties can also be charged on the late payment of tax.
From 6 April 2019, UK tax is extended to disposals of UK commercial property by non-resident individuals, trusts and companies. The extended rules also apply to the disposal of substantial interests in 'UK property-rich entities' - eg companies and collective investment vehicles, including real estate investment trusts (REITs) that derive at least 75 per cent of their value from UK land. Interests of 25 per cent or more in a company and most interests in collective investment vehicles are regarded as substantial for this purpose. In a further change, non-resident companies will be charged to corporation tax rather than CGT on the profits of real estate disposals and a revised compliance regime with extended reporting and payment deadlines will apply.
In contrast, there are no changes for UK-resident individuals or companies this year. The sale of a UK property by an individual will continue to be disclosed in the taxpayer’s self-assessment tax return. Any tax is due by 31 January following the end of the year of assessment. The sale of a principal private residence which attracts no tax does not have to be reported. UK companies will still report property disposals in their corporation tax return.
However, it will be all change for UK resident individuals and trusts next year. From 6 April 2020, the 30 day rule will also apply to such UK residents selling residential property, so returns will need to be made and tax paid within 30 days of completion. For the time being , the existing rules will continue to apply to disposals of commercial property.
As the 30 day rule will apply to disposals of residential property by UK residents and all disposals of UK real estate by non-UK residents from 6 April 2020, non-residents will lose the option to defer payment of the tax due until the following 31 January and will need to settle their liability within the 30 day period.
The changes for individuals and trusts are part of a concerted effort by the Government to ensure CGT is paid at the time the sale proceeds are received. We should expect to see further moves in this direction in a range of other taxes over the next few years.