Further practical information, including a new tax return, has now emerged for non-UK residents disposing of UK residential property.
Following lengthy consultation, we have entered a new era where non-UK residents are subject to the capital gains tax (CGT) regime for the first time on the disposal of UK residential property.
The new rules apply not only to non-resident individuals, but also to non-resident trustees, personal representatives of non-resident deceased persons, certain non-resident companies and any of the above who are partners in a partnership or members of an LLP.
Only UK residential property is affected by the new CGT charge.
We have, in previous editions of Offshore Messenger, covered many of the salient points in relation to this new legislation. However, with the new rules now in force, and with HMRC issuing further guidance and a list of ‘Frequently Asked Questions’, we can now provide some further practical pointers.
Calculating the gain and valuations
The new charge generally only applies to the element of any gain arising which relates to the period from 6 April 2015 to the date of disposal. HMRC has detailed two ways of calculating this gain:
- Establish the value of your property as of 5 April 2015 (known as ‘rebasing’) and calculate the gain or loss arising after this date; or
- Time-apportion the gain or loss based on the period the property has been owned after 5 April 2015 compared to the total period of ownership (this method is not available for properties to which the ATED capital gains regime applies (see below)).
It is also possible to elect for the gain or loss over the whole period of ownership to be taken into account.
In order to apply the rebasing method, a valuation will be required for the property as at 5 April 2015. HMRC indicates that it is not necessary that this valuation be carried out on this exact date, and it can instead be performed on the date of disposal. However, it may be less open to challenge, and generally more practical, if the valuation is carried out close to 5 April 2015. HMRC provides a service to check a valuation which requires the submission of form CG34. The use of this service would need to be considered carefully for many reasons, including time frame, as it can generally take at least two months, which may be an issue in cases where tax is due within 30 days – see below.
Tax return and tax payable
A new electronic tax return (NRCGT return) has been issued by HMRC for the non-UK resident to report the property disposal within 30 days of the property sale completion date (ie the title transfer date). If the vendor is not within the UK self-assessment tax regime in the tax year of disposal, the CGT due is also payable at this time.
However, if the non-UK resident is already within the self-assessment regime, they will also need to report the disposal on their annual tax return with the benefit that the CGT is payable on the usual tax payment date (ie 31 January after the end of the tax year) rather than within 30 days.
The electronic tax return has been modelled on the recently introduced ATED returns – which wasn’t the best model with many experiencing difficulties. The seven page NRCGT return requires details of the property itself, elections/relief claims, valuations and calculations, payments and repayments, and a declaration must be completed. There is also a section to opt for an agent to complete the form and, with the complexities involved, including the requirement to provide the CGT calculation with the form, it is likely that a UK tax agent will be required to assist. One form is required per disposal and each non-resident is responsible to notify their property share separately. All disposals must be reported irrespective of whether there is a tax liability.
The amount of tax payable will depend on the non-resident’s circumstances and there are various factors to consider. For individuals, gains will be taxed at either 18 per cent or 28 per cent depending on their level of taxable income. If they are eligible for the CGT annual exemption, this will be available to offset against any gain.
Non-UK trusts will be subject to CGT at 28 per cent and companies at the corporate tax rate of 20 per cent after an indexation allowance.
It is also possible to set off property losses against gains, if applicable, and private residence relief may be available to reduce a taxable gain.
Interaction with the annual tax on enveloped dwellings (ATED)
For affected non-natural persons (generally companies) the ATED capital gains regime still applies and, if applicable, a calculation will therefore have to be prepared to apportion any gains made between ‘ATED gains’ and the non-residents’ CGT charge. This area is very complex and will need careful consideration.
As we have seen with ATED in recent years, the introduction of a new tax, a new return filing system and the related practicalities present many challenges for professionals and others to overcome.