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Capital Gains Tax For Non-UK Residents

With two years having passed since the introduction of the relevant legislation, we thought it might be helpful to provide a note on the practicalities of reporting the disposal of UK residential properties by non-residents.

For periods prior to 5 April 2015, individuals not resident in the UK were largely outside of the UK Capital Gains Tax (CGT) net, two of the principal exceptions being assets used in a UK trade, and gains made by those “temporarily” non-UK resident. With effect from 6 April 2015, and in line with the situation in many other countries, non-residents became potentially liable to CGT on the disposal of residential property owned in the UK.

Perhaps the most important point to note is the requirement to report any such disposal to HM Revenue & Customs within 30 days of the conveyance, irrespective of whether or not a gain arises.  Failure to meet this reporting deadline will result in the imposition of penalties, aligned with those for the Self Assessment regime.

For those individuals not already registered with HMRC, it will also be necessary to submit a calculation of the gain or loss arising, with a corresponding payment of any CGT due, within 30 days. However, those already making annual personal Tax Returns, for example non-residents letting out UK property, will instead be able to include calculations, and pay any tax, within the normal Self Assessment time frame (i.e. by 31 January following the year of assessment in which the disposal takes place).

For properties acquired prior to 5 April 2015, the default method to calculate the gain or loss arising is to deduct the value of the property on that date from the net disposal proceeds. Consequently, even if a sale is not being contemplated, it would seem prudent for a valuation as at 5 April 2015 to be obtained by those affected.  This would not only help to plan for any potential tax liabilities in advance, but would also be helpful in dealing with the practicalities when a sale is undertaken, given the tight reporting deadline.  The costs of obtaining a valuation would themselves be deductible for CGT purposes, as would any improvement expenditure incurred in the period since 5 April 2015.

There are two alternative methods of calculation that can be used if beneficial:-

  • Calculating the gain throughout the period of ownership, and then working out what the gain since 5 April 2015 is as a proportion, or
  • Calculating the gain over the whole period (unlikely to be beneficial).

In addition, it is possible for non-residents to claim principal private residence relief to exempt at least a proportion of any gain from CGT, albeit that the opportunity to do so is likely to be limited for most.

Any CGT payable is calculated along the same lines as gains made by UK residents, meaning that the annual exemption, amounting to £11,300 for 2017/18, is available for each individual. CGT is currently payable at a rate of either 18% or 28%, dependent on the level of total UK income and gains for the tax year.

The above comments are a very brief summary of some complex provisions, and we would therefore recommend that further advice be taken in advance of any transaction. If you would like to discuss these rules in more detail, please speak to your Saffron contact, or get in touch via info@saffrontax.com.

April 2017