Non-Residents Owning UK Residential Property Print
Since 6 April 2015 non-residents disposing of UK residential property have been liable to CGT. There has been no change to the current tax treatment of disposals of trading stock, which remain subject to tax on profits.
Non-residential property is not caught by this new charge, and the following types of residential property are also excluded:
- Care or nursing homes;
- Purpose built student accommodation;
- Building land, provided no residential building is under construction. This does not include disposals of rights to acquire UK residential property “off plan”;
- Hospitals or hospices;
- Military accommodation;
For non-resident individuals, the rate of CGT will be the same as for UK resident individuals, currently 18% or 28%, and non-resident individuals will also be entitled to the annual CGT exemption, which is £11,700 for 2018/19, and £12,000 for 2019/20.
The rate of CGT for trustees is 28%, and the trustee annual exemption is also available.
Principal Private Residence (“PPR”) relief on the disposal of a UK property is not available to non-resident individuals unless either:
- The person making the disposal was living in the UK for that tax year, or
- The individual, his spouse or civil partner stayed overnight in the property for at least 90 times in that tax year.
Where the individual only owned the property for part of a tax year, the 90 days are time apportioned over the period of ownership for that year. If the 90-day rule is not met for that year, then the individual is treated as away from the property for that tax year.
PPR is also available to trustees of an overseas trust if the beneficiary is a non-UK resident who meets the 90 day rule.
In October 1999 Pierre purchased a property in London for £750,000. He occupied the property as his PPR until March 2013 when he left the UK and moved to Switzerland. He rented out the property until 5 August 2018 when he sells it for £3,500,000. The value of the property on 5 April 2015 was £3,250,000. He has no UK source income in 2018/19. His CGT liability is calculated as follows:
|Less value in April 2015||3,250,000|
|Less PPR relief – last 18 months of ownership
(£250,000 x 18/40
|Less Annual Exemption||11,700|
|Tax thereon @18%||34,500||6,210|
|Total CGT Payable||31,774|
Companies are charged at the rate equivalent to UK corporation tax, so for 2018/19 this is 19%. However where the company is liable to pay the ATED, that part of the charge will remain at 28%. Where part of a gain could be charged at either the ATED related charge, or CGT, the ATED related charge takes precedence. From April 2019 the ATED CGT charge is being abolished.
The charge does not apply to gains relating to periods prior to April 2015. The standard method of calculating the gain is to use the market value of the property as at 5 April 2015. This is commonly known as re-basing. Alternatively the gain can be calculated by time-apportionment of the whole gain between the periods pre 6 April 2015, and post 5 April 2015 if this produces a lower gain, or if the vendor does not obtain an April 2015 valuation. HMRC state that the valuation may be carried out at the time of disposal, but make the useful comment that it would be sensible to have a record of the condition the property was in and any unusual features that existed in April 2015. Time apportionment will not be available for disposals after 5 April 2019.
HMRC also state that where there is a loss on disposal the vendor does not need to make an apportionment if he wishes to establish a loss on the disposal of the property. However any losses arising on the disposal of UK residential property may only be set against gains from other UK residential property in that year, or be carried forward and set against gains on UK residential property of a later year. These losses cannot be used against other chargeable gains.
The above regime is being extended to cover non-residential property disposed of on or after 6 April 2019, and also to the disposal of property rich companies where at least 75% of the market value of the company’s assets is derived from UK property, and the investor owns at least 25% of the company.
To determine whether a company is property rich the test is on the gross asset value, so any loans or other liabilities are ignored.
In applying the property richness test linked disposals are taken into account by treating all of the assets as if they had been owned by one company. If as a result the one company is not treated as property rich, then none of the companies making the linked disposal are treated as being property rich.
Where the indirect disposal is in respect of property used in the course of a trade, and any non-trading use is insignificant, the gain is exempt from the new charge.
Substantial Shareholdings Relief (“SSE”) which exempt certain gains made by UK companies which dispose of shareholdings in other companies should be available in respect of indirect disposals provided that the conditions for SSE are met.
The rebasing for non-residential property will be based on the market value of the property on 6 April 2019. Alternatively, the vendor can elect to use the original cost, but where this is used time apportionment of the gains pre and post April 2019 is not allowed. In addition, if a loss arises on an indirect disposal when calculated using the original cost basis, the loss is not allowable. Time apportionment continues to be available for residential property.
The rate of tax charged on commercial property gains are corporation tax rates (currently 19%) for companies, and 20% for individuals and trustees. The rates for residential property disposed of by individuals and trustees remains at 28%.
Where the person making the disposal is resident in a territory which has a double tax treaty with the UK which gives sole taxing rights to the territory of residence, then the provisions of the double tax treaty take precedence over UK law, and the gain will not be taxable in the UK.
A person making a disposal caught by these provisions must report the disposal to HMRC, and pay the CGT due within 30 days of the date of conveyance of the property, and pay the tax that is due. The report and calculation of the gain is made online. Where that person has an existing relationship with HMRC, they will be able to elect to defer payment as part of their self-assessment return so that the CGT liability for the year 2018/19 will be payable by 31 January 2020. However a report must still be made to HMRC within 30 days of the disposal of each property.
Where a report is made to HMRC this must include a calculation of the gain (or loss) arising on the disposal of the property, and on receipt of this HMRC will send an e-mail with a payment reference and details on how to pay.