Non-residential capital gains tax on UK properties

As of the 6th of April 2019, HMRC has extended their Non-Resident Capital Gains Tax (NRCGT) regime to include both direct as well as indirect sales of all UK property and land. Equally important is to remember that, as a non-resident, you only have 30 days to tell HMRC about the sale through the submission of an NRCGT return.

In this article, we’ll go into more detail about how this extension of the NRCGT regime could potentially affect you and what are the important points you have to remember as a non-resident disposing of UK land and property, including:

1. The Non-Resident Capital Gains Tax Regime prior to 6 April 2019.
2. What changes were brought into effect on the 6th of April 2019?
3. Classification of “Non-resident” for Capital Gains Tax Purposes.
4. What is meant by direct and indirect disposals?
5. How to report a disposal of UK property as a non-resident and the reporting period deadline.
6. How much will you need to pay?

1. The Non-Resident Capital Gains Tax Regime prior to 6 April 2019.

Prior to the latest changes in April 2019, non-residents were liable to pay CGT on gains relating to direct disposals of residential property only. This meant the sale of non-residential property, as well as any indirect sales (which we’ll discuss in greater detail below), were largely exempt from CGT for non-residents.

These rules were based on NRCGT policy that was implemented on the 6th of April 2015. Before that, non-residents disposing of any UK land or property were largely exempt from CGT.

2. What changes were brought into effect on the 6th of April 2019?

Two main changes to take note of are the extensions to the type of property and the type of disposal.

The type of property has been extended from residential property only, to all UK property and land. That means, if you are a non-resident individual or representative, a non-resident landlord or a non-resident trustee, selling any type of UK property, you will have to complete a non-resident Capital Gains Tax return. Even if you suspect no CGT is due, you still have to complete the form to report the property disposal.

The second major change is the extension from direct disposals only, to now include indirect disposals as well. This rule in particular casts quite a far-reaching net on UK property investors and we’ll look at the difference between the two terms further down below.

Also worth noting is that, from 6 April 2019, non-resident companies will account for any gains made on the sale of UK property through Corporation Tax, rather than Capital Gains Tax, and don’t have to complete an NRCGT return.

3. What is meant by direct and indirect disposals?

Direct disposals of residential and non-residential property are what we would consider a traditional sale between two parties. This would apply to sellers who have a direct interest in the property that they are disposing of.

Indirect disposals happen when a non-resident sells shares in a property rich company that they hold at least a 25% investment in.  A property rich company is one where 75% of the gross assets are made up of UK land and buildings. As we can see, indirect sales are applicable to sellers who do not hold a direct interest in the property, but rather a large interest in a UK company that holds a majority of its value in UK land and property.

There are two exceptions. Indirect disposals do not apply when property in a continuing trade is also disposed of, and when 2 or more companies are sold at the same time by the same investors and the property richness test would not apply if the disposals were taken as one transaction (the property richness test is conducted to determine whether 75% or more of the gross qualifying assets of the company being disposed of are in fact UK land).

4. Classification of “Non-resident” for Capital Gains Tax Purposes.

A person’s residence status for tax purposes is determined by a straightforward residency test which is based on the number of days spent in the UK during a tax year – which runs from 6 April to 5 April the following year.

You’re automatically resident if either:

  • you spent 183 or more days in the UK in the tax year, or;
  • your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year

You’re automatically non-resident if either:

  • you spent fewer than 16 days in the UK (or 46 days if you have not been classed as UK resident for the 3 previous tax years)
  • you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working

This is the basic test for UK tax residency determination that will apply to the majority of people. However, it can get decidedly more complicated if you move in and out of the UK during a particular tax year. A split-year treatment may then become applicable. More information on this can be found in HMRC’s Guidance notes

5. How to report a disposal of UK property as a non-resident and the reporting period deadline.

You must report the disposal online by filling out a non-resident Capital Gains Tax Return, accompanied by a computation of your gains and losses made on the sale. This must be done even if you’ve made a loss or determined that there is no capital gains tax due. If you are registered with HMRC for Self Assessment, you must still complete an NRCGT return separately.

The reporting deadline is 30 days from the date of conveyance, which simply means the date on which ownership of the property was transferred. This deadline is significantly shorter compared to Resident Capital Gains Tax returns, which only have to be submitted by 31 December after the tax year when gains are realised.

The 30 days seem even shorter if you consider you have to complete and submit the form, along with your computations, plus make any payments due.

Certain penalties become applicable if the filing or payment deadline is missed

6. Penalties for missing filing and payment deadlines

Late filing penalties and interest can be charged if the 30-day deadline is missed.

This includes the following:

  • £100 if the deadline is missed for a period up to 6 months.
  • For any period over 6 months, an additional penalty of £300 or 5% of any tax due is charged, whichever is greater.
  • For a period of more than 12 months, a further penalty of £300 or 5% of any tax due is charged, whichever is greater.
  • If any non-resident CGT remains outstanding after 31 January after the end of the tax year of the disposal, the late payment penalty will be 5% of the tax outstanding.

    Again, there are exceptions to the rule here and you can defer payment if, for example, you are expected to make a tax payment to HMRC through your normal Self Assessment submission.

    7. How much will you need to pay?

    Here it is important to keep three things in mind:

  • Did you dispose of UK residential property after 6 April 2015? (Before that, non-resident UK property was exempt from CGT).
  • Did you dispose of a UK non-residential property or land after 6 April 2019? (Both residential and non-residential UK land and property fall under the NRCGT regime from this date onward).
  • Did you make an indirect disposal of UK land after 6 April 2019? (Both direct and indirect disposals fall under the NRCGT regime from this date onward).

The rate of CGT you have to pay on the gain of your disposal can vary significantly. If you’re a basic rate Income Tax payer, the rate is 18% on residential property and 10% on non-residential property.

If you are a higher rate Income Tax payer, the rate is 28% on residential property and 18% on non-residential property.

HMRC has provided a very useful non-resident Capital Gains Tax calculator which can be used to work out the gain and tax you might be liable for. Although HMRC state that it only takes about 10 minutes to work through the calculator itself, there is a lot of information that needs to be compiled and considered before you can start.

Because of this, and taking into account the short deadline of 30 days, the calculation can quickly become very complicated. This increases the chance of errors creeping in and we would strongly recommend contacting your accountant or professional tax advisors for further advice before you get started.

If you would like more information on the above or simply want to speak to one of our experienced tax advisors, please contact us.

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