Capital Gains Tax for Non-UK Residents
From the 6 April 2015, non-UK residents who dispose of a UK residential property may be liable to pay Capital Gains Tax (CGT) on any gains made on the disposal.
The rules apply to individuals, members of partnerships, personal representatives of deceased estates and trustees. Existing rules already bring non resident companies within the scope of capital gains tax on UK residential properties.
Prior to this date, non UK-residents were not subject to UK capital gains tax on the disposal of assets.
However, under the new rules non-UK residents will be taxed on the disposal of UK residential properties, harmonising the UK tax system with other jurisdictions that normally charge tax on the basis of where the asset is located.
UK residential properties will be liable to the charge, however property used on a communal basis, such as hotels, care homes and purpose-built student accommodation will remain outside the scope of capital gains tax for non-residents.
How is it calculated?
The gain chargeable to CGT is calculated by deducting the base cost and associated selling/acquisition costs from the sale proceeds. This gain is then charged to tax at 18% or 28% depending on whether you are a basic or higher rate taxpayer.
As with UK residents, non-UK residents subject to the charge will be entitled to the Annual Exempt Amount, enabling them to earn up to £11,100 tax free. Any gains above this amount will be chargeable to CGT on the proportion of the gain that relates to the period after 5 April 2015.
With this in mind, non-UK residents should consider valuing their UK residential properties as soon as possible so as to provide evidence of the April 2015 value in the event of a future disposal.
If a loss is made on the disposal of the property, the losses may be set against gains made on future UK residential properties.
Private Residence Relief
Private Residence Relief (PRR) may be available if the residential property sold was used as the taxpayers main home at some point.
The rules for PRR are more limited for UK-residents, and state that PRR will only be granted if:
- You (or your spouse) were living in the UK for that tax year, or
- You (or your spouse) stayed overnight at the property at least 90 times in the tax year
Where a property has been your main residence for part of the period, the relief is time apportioned, although certain periods of deemed residence (such as the last 18 months of ownership) may also qualify for relief.
Lettings Relief is also available to non-UK residents, provided that the property was their principal private residence at some point, and the property was let out.
Lettings relief is calculated as the lower of:
- PRR claimed
- The amount of the gain related to the letting
How is it reported?
Non-residents must report the disposal to HMRC within 30 days of completion.
Where a UK self-assessment tax return is already required, such as if the non-resident has UK rental income, an election can be made so that the deadline for CGT owed can be extended to 31 January following the tax year of disposal.
Otherwise, If a tax return is not required, the disposal must be reported to HMRC and the tax paid within 30 days.
If you are non-UK resident and have disposed of a property after 5 April 2015, or if you need assistance working out your residence status, please contact a member of our team.