Non-Residents Owning UK Residential Property Print
Since 6 April 2015 non-residents disposing of UK residential property have been liable to CGT. The CGT regime was extended so that the disposal of non-residential property, and property rich companies by non-residents also became liable to UK CGT for disposals on or after 6 April 2019.
There has been no change to the current tax treatment of disposals of trading stock, which remain subject to tax on profits.
The following types of residential property are also excluded from the residential property charge:
- 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%, for residential property, and 10%/20% for non- residential property. Non-resident individuals will also be entitled to the annual CGT exemption, which is £12,300 for 2020/21, and 2021/22.
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 residential 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.
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 either using the historical cost with no time-apportionment, or by using the historical cost and time-apportionment of the whole gain between the periods pre 6 April 2015, and post 5 April 2015.
On 5 October 2004 Pierre purchased a property in London for £1,250,000. He occupied the property as his PPR until 5 April 2014 when he left the UK and moved to Switzerland. He rents out the property until 5 August 2021 when he immediately sells it for £3,500,000. The value of the property on 5 April 2015 was £3,000,000. He has no UK source income in 2021/22. His capital gain may be calculated using any of the following 3 methods:
Historical cost – no time apportionment:
|Less cost October 2004||1,250,000|
|Less PPR relief – Oct 04 to April 2014
last 9 months of ownership
Total period of ownershup
£2,250,000 x 123/202
Historical cost and time apportionment to April 2015:
|Less cost October 2004||1,250,000|
|Apportionment to April 2015:
Period of ownership to April 2015
Total period of ownership
Exempt gain: £2,250,000 x 126/202
Rebasing to April 2015 value:
|Less value in April 2015||3,000,000|
In this example the rebasing method produces the lowest gain, and is the method Pierre should use to calculate his gain.
No PPR relief is due in either the time apportioned gain, or the rebased gain because Pierre ceased to occupy the property as his PPR before 5 April 2015.
Companies are charged at the rate equivalent to UK corporation tax, so for accounting periods up to 31 March 2023 this is 19%.
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.
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 property rich company is defined as a company 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.
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. The report and calculation of the gain is made online. 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.