Non-resident Capital Gains Tax
Since 2015 overseas investors have been liability to UK capital gains tax on the disposal of UK sited property investments
- From 6 April 2015 render non-residents who dispose of UK land liable to capital gains tax.
- Off-plan purchases are included in the definition of dwelling.
- Calculating the chargeable gain may require an April 2015 valuation of the land.
- HMRC must be notified of a disposal within 30 days of the conveyance.
The new rules from 6 April 2015 will catch disposals of UK residential property by non-resident companies and individuals.
Regime before 6 April 2015
The general rule was that a non-UK resident are not subject to UK CGT on the disposal of UK or foreign assets.
New rules after 6 April 2015
The “old rules” applied to any asset, but the New rules are only relevant to the disposal of residential property.
The rules cover every non-resident person, company, trust, partners and members of an LLP , or personal representative of a non-resident deceased person, disposing of a UK residential property.
The rules are not intended to be punitive, but rather to put non-residents on an equal footing with residents in relation to the disposal of residential properties, therefore personal allowances, annual exemptions and other reliefs are available to non-residents.
If a property has been owned since 5 April 2015, only the portion of the gain falling after that date will be subject to UK tax.
Meaning of dwelling
Residential property is defined as a dwelling. It is a building that is used, or is suitable for use as a dwelling, or is being constructed or adapted for such use.
There are three routes of calculating the tax:
- default method:
- straight line time-apportionment.
- election for retrospective basis
Where a period of property ownership straddles April 2015, the taxpayer can choose which method of calculating the post-April 2015 portion of gain gives the best result. Care therefore needs to be taken to choose the correct method
When a change of use occurs over the period of ownership an adjustment will be made to reflect the time that the building was not used as a dwelling.
The new rules apply to closely held companies. A closely-held company is one under the control of five or fewer participators.
Institutional investors are outside the scope of these rules if their funds are “widely marketed” to investors.
Individual cells within a protected cell company are specifically within the new rules if the cell is equivalent to a closely-held company and the gain is primarily or wholly attributable to that cell.
There is the potential for interaction with ATED-related CGT, and “where part of the gain could be subject to both ATED-related CGT and the new CGT charge, the ATED-related CGT charge will take precedence”.
HMRC will need to be notified of a property disposal within 30 days from the day after the conveyance in all cases.
If the non-resident is in income tax or corporation tax self assessment or ATED, these liabilities can be paid through the normal filing process.
Otherwise the vendor will need to make an “advance self assessment” and pay their tax to HMRC within 30 days.
The conveyancing solicitor is not required to deduct withholding tax and only the person liable to CGT is responsible for delivering a return to HMRC.
Frequently Asked Questions
Yes if the property is situated in the UK it will be subject to capital gains tax irrespective of your residency status.
From 2015 to 2016, non-residents who dispose of a UK residential property are liable to Capital Gains Tax and, in most cases, can claim the Annual Exempt amount (AEA) in the same way as UK residents. This is not available to companies who dispose of a UK residential property, as they may be able to claim other allowances.
Most countries operate rules in relation to double taxation and will allow a deduction for overseas tax suffered so that you do not pay tax twice. A double tax agreement may exist between the countries which sets out the rules on taxing rights and how double tax relief is given.
You can deduct costs of buying, selling or improving your property from your capital gain.
- estate agents’ and solicitors’ fees
- costs of improvement works, for example for an extension or major building work (normal maintenance costs, such as decorating, do not count)
- Stamp duty previously paid on acquisition
- Capital expenses incurred on the property that have not been deducted for income tax purposes.