Until 5 April 2015, non-resident individuals were not liable to UK Capital Gains Tax (CGT) on the disposal of UK assets (unless they were deemed so-called ‘temporary non-resident’). From 6 April 2015, non-residents disposing of UK residential property became liable to CGT and are required to submit a non-resident CGT return.
In addition, from 6 April 2019, the disposals of all UK land and property (i.e. no-longer limited to UK residential property) will now be subject to non-resident CGT.
Indirect disposals of all UK property will also be caught under these rules, this is where you are making a disposal of any entity which owns UK property. The conditions are as follows:
- The gross market value of all UK residential and non-residential land is 75% or more of the total value of the entity, ignoring any liabilities; and
- the individual holds an interest of at least 25%, or has done at some point in the five years prior to disposal.
This will cover the disposal of assets such as company shares.
Non-resident individuals are entitled to the annual exemption against capital gains which is £11,700 in 2018/19 and increasing to £12,000 in 2019/20. If the gain is below the annual exemption then no tax is due.
Reporting to HM Revenue and Customs
You are required to submit a non-resident CGT return to HMRC within 30 days of completion. This applies regardless of whether there is no liability. For instance, if the gain is less than the annual exemption or if a loss is made.
The return is also required even if the disposal will be reported elsewhere such as a Self Assessment tax return.
For individuals who are classed as UK resident for the tax year, but for whom split year treatment applies, you are still required to submit a non-resident CGT return if you dispose of UK property in the overseas part of the tax year.
How much tax will be due?
There are a variety of methods for non-residents to calculate the gain/loss arising on the direct disposal of UK property.
- Sale proceeds less market value at 5 April 2015 for residential properties, or 5 April 2019 for other land/properties.
- Sale proceeds less actual acquisition cost and then time apportioning the gain for the period since you became liable to CGT to the date of disposal (i.e. from 5 April 2015 for residential properties, or 5 April 2019 for other land/properties).
- Sale proceeds less actual acquisition cost with no further adjustments, this would be beneficial if the value had decreased and a capital loss is available to claim.
If the rebasing or time apportionment method is used, the remainder of the gain may become chargeable if the individual returns to the UK and the temporary non-residence rules are met. These rules are:
- The period of non-residence is less than five years;
- before leaving the UK the individual had been resident for at least four out of the previous seven tax years; and
- the gain arises on an asset held prior to the individual becoming non-resident.
For indirect disposals the only acceptable method of computation is to rebase the assets at 5 April 2019, there is no option for time apportionment or using the original acquisition cost.
Once the gain has been calculated with the annual exemption and available reliefs deducted, the tax is calculated as follows:
- Residential property – at a rate of 18% up to the basic rate band and 28% on the excess.
- Non-residential property and land, and indirect disposals – at a rate of 10% up to the basic rate band and 20% on the excess.
The basic rate band is used against income above the personal allowance first and then against capital gains. The basic rate band is £34,500 in 2018/19 and increases to £37,500 in 2019/20.
Any CGT due is also payable within 30 days of completion, unless you have an existing relationship with HMRC and choose to defer payment until the Self Assessment payment is due, which is 31 January following the end of the tax year of disposal.
It has recently been announced that from 6 April 2020 all CGT liabilities on residential property disposals will require a payment on account within 30 days of disposal. Although the full details are not yet available, presumably the deferment of tax for non-residents disposing of residential properties will also not be possible after this date.
What reliefs are available?
If you are disposing of a residential property that was previously your main residence then you should be entitled to Principal Private Residence (PPR) relief on part of the gain and this would be considered when deciding the most beneficial method of calculating the gain to use.
A tax year while you are non-resident will only be eligible for PPR if you have spent at least 90 nights in that property for that year. Therefore with the restrictions on UK days based on the Statutory Residence Test to remain non-resident, there will only be a small number of cases where PPR relief will be available in a non-resident period. In addition, if you have purchased an overseas property, it will need to be considered if it is more beneficial to nominate this as your PPR (for non-residents this can be done at the time of disposal).
If you have rented out your former PPR, there is an additional relief – Lettings Relief – which may be also be available on disposals up to 5 April 2020.
From 6 April 2019, all individuals disposing of UK property will be liable to CGT, with non-residents being required to submit a non-resident CGT return within 30 days of completion. In some cases it is possible to defer the tax until the Self Assessment date but this is expected to change.
The rules regarding Capital Gains Tax are complex, with various reliefs and rates applying to different scenarios. It is, therefore, always recommended to take professional advice from a Chartered Tax Adviser when disclosing details to HM Revenue and Customs to ensure that the calculations are correct as well as benefitting from any possible reliefs.
Although this note is focused on the specific rules for non-resident individuals, there are similar rules for companies and trustees, however there will not be the same tax rates, exemptions and reliefs as for individuals.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.