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Capital Gains Tax for non-residents: UK residential property

Date online: 12/05/2015

Overview

If you’re not resident in the UK and sell (or dispose of) a UK residential property you must tell HM Revenue and Customs (HMRC) and you may have to pay Capital Gains Tax on any gains you make on disposals made after 5 April 2015. A disposal is when the contract to sell the property is agreed (often called ‘exchange’).

Work out your residence status.

Capital Gains Tax may be payable on UK residential property disposals by:

  • non-resident individuals
  • personal representatives of non-residents who have died
  • any non-residents who are partners in a partnership
  • non-resident trustees
  • non-resident companies or funds

If a property was jointly owned each owner must tell HMRC about their own gain or loss.

Find out more about disposing of an asset. Different rules apply if you are temporarily non-resident as you may also have to pay Capital Gains Tax on gains made on disposals of other types of UK assets, such as company shares.

Temporary non residents and Capital Gains Tax: HS278 Self Assessment helpsheet

RDR1: residence, domicile and the remittance basis

UK property you pay Capital Gains Tax on

If you are a non-resident you pay Capital Gains Tax on the gain when you dispose of:

Change of use

If you changed the use of the property while you owned it you can time apportion any gain to reflect any time the property was not residential. If the property was in mixed residential and non-residential use you can make a fair and reasonable apportionment of the gain.

UK property you won’t pay Capital Gains Tax on

You don’t pay Capital Gains Tax or need to tell HMRC about disposals of non-residential property or certain types of residential property, including:

  • care or nursing homes
  • purpose built student accommodation
  • building land, provided no residential building is under construction - this doesn’t include disposals of rights to acquire UK residential property ‘off plan’
  • hospitals or hospices
  • military accommodation
  • prisons

Allowances and reliefs

Capital Gains Tax allowances

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount).

For the period 6 April 2015 to 5 April 2016 the Annual Exempt Amount is £11,100.

Personal representatives are entitled to the tax free allowance from death to the following 5 April and also for the next 2 tax years.

The allowances are different for trusts, £5,550 for the period 6 April 2015 to 5 April 2016.

Reliefs

Private Residence Relief

If you lived in the property as your main home Private Residence Relief may apply to all or part of the gain.

If you qualify for Private Residence Relief on the whole property during part of the period of ownership, then the final 18 months of ownership are also automatically covered. For example if you dispose of the property between 6 April 15 and 5 October 2016 there will be no Capital Gains Tax to pay, but you must report the disposal to HMRC.

Qualifying for Private Residence Relief as a non-UK resident

As a non-UK resident you will only get Private Residence Relief on a UK residential property if:

  • you or your spouse or civil partner were living in the UK for that tax year
  • you or your spouse or civil partner stayed overnight at the property at least 90 times in the tax year (the 90 day rule)

If you only owned the property for part of the year, the 90 days are time apportioned in line with the time you were the owner. You will also get Private Residence Relief if the total number of days spent in any UK property you own in the relevant tax year meets the 90 day rule - but you can only nominate one property for Private Residence Relief.

If you don’t meet the 90 day rule you will be counted as away from the property for that tax year.

Private Residence Relief will also be available for trustees if the beneficiary is a non-UK resident and meets the 90 day rule outlined above.

Work out how much Private Residence Relief you get.

The rules for absence, job-related accommodation and lettings reliefs are unaffected by the new rule for Private Residence Relief.

Example of a rebasing calculation involving Private Residence Relief - gain and loss from 5 April 2015 to disposal

For illustration purposes:

  • the property was purchased 5 January 1990 for £70,000 with £2,200 costs
  • the property was used as the person’s main residence and qualifies for Private Residence Relief for the period 5 January 1990 to when they left the UK to retire abroad on 5 April 2010
  • an extension was added to the property 1 September 2005 costing £20,000
  • the market value of the property at 5 April 2015 was £200,000
  • the property was sold for £270,000, with exchange of contracts on 5 June 2020
  • conveyance completed on 15 June 2020
  • there were disposal costs £4,000
  • the property was let or available for let throughout period April 2010 to sale

The Annual Exempt Amount used throughout the example is £11,100, along with Capital Gains Tax rates of 18% and 28%.

*** Table

This person did not spend 90 nights in the property for any of the tax years from 6 April 2015 to disposal and so cannot consider nominating this property as their main residence for any the tax years between 6 April 2015 and 5 June 2020.

Ownership from 6 April 2015 to 5 June 2020 is 62 months. Private Residence Relief is due for the last 18 months of ownership.

Private Residence Relief is £66,000 x 18/62 = £19,162.

Lettings relief is also due and the lowest calculated figure is equal to the private residence relief of £19,162.

*** Table

This person’s other taxable UK income for the tax year 2020 to 2021 is £7,500 and is covered by personal allowance.

Capital Gains Tax due is £16,576 x 18% = £2,983.68.

Other reliefs

There are other reliefs that might mean you don’t have to pay any non-residents Capital Gains Tax or that reduce the amount that would otherwise be due. You can only claim these by completing and sending a non-residents Capital Gains Tax return.

You may be able to reduce or delay the amount of Capital Gains Tax you have to pay if you’re eligible for other tax reliefs.

Gifts to your spouse or charity

Special rules apply if you give a UK residential property to:

  • your spouse
  • your civil partner
  • charity

When someone dies

When you inherit a UK residential property, Inheritance Tax is usually paid by the estate of the person who’s died.

You only have to work out if you need to pay Capital Gains Tax if you later dispose of the property. You will need to pay any tax due.

Personal representatives of a deceased person who lived abroad

If you’re the personal representative of a deceased person who lived abroad and UK residential property has been disposed of after 5 April 2015 you will need to report the disposal to HMRC. The annual exempt amount is available for disposals in the same tax year as the death or the following 2 tax years.

Work out your taxable gains

You need to pay Capital Gains Tax if your total taxable gains are above your annual Capital Gains Tax allowance.

You only have to pay tax on the proportion of the overall gain which is for the period after 5 April 2015. It’s the gain you make that’s taxed, not the total amount of money you receive.

For example, if your property was worth £150,000 at 5 April 2015 and you sold it some years later for £250,000, you made a gain of £100,000 (£250,000 minus £150,000).

Calculating your taxable gain or loss

You have a choice of how you calculate this. If you don’t use the standard HMRC approach you need to elect to use the time apportionment method, or to calculate the gain over the whole period of ownership.

HMRC approach to calculating your taxable gains or loss

For disposals of UK residential properties by non-residents where you owned the property before 6 April 2015 the standard approach for calculating the gain is to use the market value at 5 April 2015.

  1. Establish the value of your property as of 5 April 2015 (known as ‘rebasing’).
  2. Work out the difference between the value on 5 April 2015 and the value when you disposed of the property.
  3. Deduct any costs of improving the property incurred after 5 April 2015 and the legal cost of selling the property.

Example of the default HMRC approach

Rebasing calculation - gain from 5 April 2015 to disposal:

*** Table

Time apportionment calculation

You can work out a simple straight-line time apportionment of the whole gain made over the period you owned the property.

Example of straight-line time apportionment

Total ownership 65 months, period from 6 April 2015 to disposal was 14 months, 21.53% (14/65 x 100) of ownership relates to period from 6 April 2015 to disposal.

*** Table

Gain over whole period of ownership calculation

You can decide not to make an apportionment, particularly if you want to establish an amount of loss on a property. You can also use further apportionments to reflect any non-residential use of the property.

Example of gain over whole period of ownership

***Table

Valuations

It’s up to you to choose how to value the property and whether to get more than one valuation, HMRC don’t have a preference for how this should be done. It’s not necessary to get a valuation carried out in April 2015 instead you can wait until you make the disposal.

It’s sensible to record in April 2015 what condition the property is in and any unusual features as this will help make a fair valuation later on.

You can ask HMRC to check your valuation by using form CG34. This check takes at least 2 months and can only be requested after disposal. You will need to report the disposal within 30 days of the property being conveyed and make payment of the tax due. You can later amend your return if necessary.

Work out your Capital Gains Tax rate

Add together all your taxable UK income.

Find out how to work out your Capital Gains Tax rate.

If you’re a trustee or personal representative

Trustees or personal representatives of someone who’s died pay 28% Capital Gains Tax from the trust or estate.

Annual Tax on Enveloped Dwellings (ATED) related Capital Gains Tax and non-resident Capital Gains Tax

A property may be subject to both ATED-related Capital Gains Tax and non-residents Capital Gains Tax.

If both charges apply:

  • ATED-related Capital Gains Tax will take precedence
  • any ATED-related gain will be subject to ATED-related Capital Gains Tax at 28%
  • any remaining gains made after 5 April 2015 will be subject to non-residents Capital Gains Tax at 20%

If you make a loss on a UK residential property

Reporting losses

You must report the disposal to HMRC even if you have made a loss.

Using losses to reduce your gain

When you report a loss, the loss is ring-fenced for use against your gains from other UK residential property disposals you make in the same tax year.

You can carry forward any unused losses to use against UK residential property disposals in a later tax year.

If your total taxable gain is above the tax-free allowance, you can deduct unused losses from disposal of UK residential property in previous tax years. If that reduces your gain to the tax-free allowance, you can carry forward any remaining losses to a future tax year.

Changes to your residence status and losses

If you change your residence status from non-resident to UK resident you will be able to use any unused losses on UK property as general losses against other chargeable gains.

If you are a UK resident and become non-resident you will be able to use any unused UK residential property losses against any UK residential property gains you make in future.

Find out about losses when disposing assets to family and other ‘connected’ people.

Calculating the tax you owe

For the first property you disposed of in the tax year.

  1. Work out the gain for the property you’ve disposed of.
  2. Deduct the Annual Exempt Amount.
  3. Deduct any allowable losses.
  4. Work out the Capital Gains Tax rate.
  5. Report and pay HMRC within 30 days of conveyance.

If you disposed of other properties in the same tax year.

  1. Work out the gain for each property you’ve disposed of.
  2. Deduct any remaining Annual Exempt Amount, taking into account if some or all of this has already been used for a disposal earlier in the tax year.
  3. Deduct any unused allowable losses.
  4. Work out the Capital Gains Tax rate taking into account the amount of the rate band already used by earlier disposals in the year.
  5. Report and pay HMRC within 30 days of conveyance.

Reporting and paying Capital Gains Tax

Deadline for reporting and paying

You must report the disposal to HMRC within 30 days of conveyance of the property even if there is no tax liability. Once you have reported the disposal, HMRC will send you an email with a payment reference and details on how to pay.

For example if you conveyed the property on 1 July 2015 you have until 31 July 2015 to report it.

Whether you are registered with HMRC for UK tax through Self Assessment or not, you must report each property you dispose of after 5 April 2015 separately to HMRC. You do that using HMRC’s online form.

You must give your calculations for each capital gain or loss that you report.

You must also pay the Capital Gains Tax after conveyance of the property.

Self Assessment tax return

If you’re already registered in the UK for Self Assessment you’ll need to report the disposal within 30 days using the online form, you can pay when HMRC send you the reference number. When you report the disposal you can elect to pay any Capital Gains Tax you owe as part of your normal Self Assessment end of year tax payment tax.

You must still fill in the capital gains section of your Self Assessment tax return unless the gain is exempt due to Private Residence Relief.

Amending your return

You may sometimes need to use estimated figures when you report a disposal to HMRC. If you have taxable UK income this may affect the rate of non-resident Capital Gains Tax you pay. You must report the disposal of your property within 30 days of conveyance. So you may need to estimate your taxable UK income on your non-resident Capital Gains Tax return. You can use the online form to send an amended non-resident Capital Gains Tax return showing your final figure. You can make an amendment to your return for a disposal between 6 April 2015 and 5 April 2016 by 31 January 2018.

Record keeping

You need to keep records to support your calculations of gains or losses you report to HMRC. For example valuations of market value at 5 April 2015.

Penalties

You’ll have to pay a penalty if you:

  • report the disposal late
  • send in your tax return late
  • miss the payment deadline

You may also have to pay a penalty if the information you report to HMRC through the online form or your tax return is inaccurate or you do not keep records.

Information about penalties HM Revenue and Customs may charge if you have sent an inaccurate return or other document - factsheet CC/FS7a.

Using a tax agent or adviser

If you are the chargeable person you can give HMRC limited authorisation to deal directly with your agent or advisor. Limited authorisation means that this authorisation would only apply to matters concerning non-residents Capital Gains Tax. You can do this by sending a letter authorising this and signed by you to non-residentcgt.spt@hmrc.gsi.gov.uk. Your letter must be sent in PDF format.

Companies

If you’re a company:

  • you’ll pay 20% tax on your chargeable gains
  • you’ll have access to limited indexation allowance to allow for the effect of inflation on the costs of acquisition when calculating the chargeable gain
  • group companies can enter into pooling arrangements to aggregate gains and losses

Closely held companies

Only non-resident close companies and funds not meeting the genuine diversity of ownership test will be subject to the non-residents Capital Gains Tax charge.

A ‘closely-held company’ is one which:

  • is under the control of or held by 5 or fewer participators
  • 5 or fewer participators are entitled to acquire rights to the greater part of the company’s assets on a winding up

HMRC won’t consider a company as closely-held if they only qualify by including as a participator a:

  • company which is itself a diversely-held company
  • qualifying institutional investor (such as a widely-marketed unit trust or open-ended investment company)
  • loan creditor of the company which is itself a diversely-held company or qualifying institutional investor

For protected cell companies, the test is applied to each cell or division of the company, not just at the level of the company.

Exempt companies

These companies or funds will be exempt from the non-residents Capital Gains Tax charge and need to claim the exemption when reporting the disposal:

  • qualifying diversely-held company
  • qualifying unit trust scheme
  • qualifying open ended investment company
  • life assurance companies holding the property as part of their portfolio of investments to provide policyholder benefits, and not otherwise exempted as diversely held companies

Pooling for group companies

Group companies can enter into pooling arrangements to aggregate gains and losses on UK residential property across a group. Where a pooling arrangement is in place a representative company will be responsible for making a consolidated return of all relevant disposals during the relevant period.

The members of the non-residents Capital Gains Tax pooling group are jointly and severally liable for the tax. Liability starts when a member joins the group, in respect of any liability arising before or after that date. Liability continues up to the time when they cease to be a member of the group. The liability remains after a company has left the group but only for any unpaid liability that arose before it ceased to be a member of the group.

If the representative company of the non-residents Capital Gains Tax group leaves, but the group continues to exist, with unpaid liabilities and insufficient assets to service those liabilities, the company should remain liable for the debts that arose.

For companies that don’t belong to a group, or where no election is made for pooling, gains and losses will be treated in the same way as they are for individuals.

There will be a de-pooling charge on companies that leave a pooling arrangement.

 

 

*** To see tables - follow this link https://www.gov.uk/capital-gains-tax-for-non-residents-uk-residential-property

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