Non-Residents Owning UK Residential Property Print
Legislation was introduced from April 2015 which charges CGT on gains made by non-residents disposing of UK residential property. 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 for 2015/15 is £11,100.
The rate for trustees will be 28%, and the trustee annual exemption is also be available.
A new rule restricts an individual from claiming Principal Private Residence (“PPR”) relief on the disposal of a UK property 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.
Where PPR relief is due, it is worth noting that the last 18 months of ownership are also relievable, so if a property was used as the individual’s PPR for a period prior to 5 April 2015 and is sold before 5 October 2016 then there will be no CGT liability on the disposal. In the Frequently Asked Questions of 18 March 2015, HMRC use the example of an individual who lived in a property for 20 years before leaving the UK in 2010, and had met the conditions for PPR relief up to that date. HMRC confirm that the final period of 18 months will be exempt. As the gains are only chargeable from April 2105, the whole gain is therefore exempt from CGT.
Companies will be charged at the rate equivalent to UK corporation tax, so this will be 20%. 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 the new CGT, the ATED related charge will take precedence.
The new charge will 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 record in April 2015 what condition the property is in and any unusual features.
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.
A person making a disposal caught by these new 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 2015/16 will be payable by 31 January 2017. 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.