OCTOBER 2015 - Non Residents Capital Gains Tax on UK Residential Property - Location, Location, Location
New rules have been introduced to tax capital gains realised by non UK resident individuals on residential property owned in the UK. The legislation was introduced with effect from 6 April 2015 and creates a tax charge by virtue of the property location rather than the seller’s location. This may be a very expensive change in planning your tax affairs.
Period of Gain
The rules will apply to gains accruing after 5 April 2015 although elections are available to either time apportion the gain or tax the whole period of ownership. This latter option is likely to be taken when a loss has been incurred. It may be wise for non-residents to have their UK properties valued now to avoid disputes over capital gains tax calculations in the future. This will also assist sellers to decide on the most appropriate basis of calculation to adopt on sale.
Main Residence Elections
If a non-resident person and/or their spouse spends 90 nights in the UK property in a tax year then they can elect to have this property as their main residence and therefore exempt from capital gains tax. This provision must however be looked at in conjunction with the statutory residence test rules as the individual may find themselves to be UK resident if too much time is spent in the UK so professional advice must be taken if there is any doubt about residence status. There may also be some measure of main residence relief if the property was occupied by the seller before leaving the UK.
Properties which are let will not be eligible for a main residence election but communal residential properties such as care homes, nursing homes and certain student and school accommodation will not be subject to the non-resident CGT charge. There may be some measure of letting relief if the property was occupied by the seller before leaving the UK.
Reporting and Tax
All sellers are required to report the disposal to H M Revenue and Customs within 30 days of sale completion date. If the seller has not been issued with a UK self-assessment tax return form then the gain must be quantified and the tax paid on submission of the 30 day return. If the seller is required to complete a self-assessment return then the gain will be quantified in that return and tax paid at the normal payment date, being 31 January following the year if disposal.
Tax will be applied at the rate of 18% or 28% on gains in excess of the annual exemption and on which no successful main residence election has been made. The annual exemption is currently £11,100 and will apply to total gains realised by the non-resident in any particular tax year. The rate will depend on what other UK income or gains have been earned in the year. If the seller pays tax in another country on the disposal then double tax relief may be available to cover some or all of the liability but each case will have to be determined on its own merits.
The new non-resident CGT rules may also apply to companies, partnerships and trusts owning UK residential property but these specific provisions are not covered here. It is even more important that specialist tax advice is taken for these structures.