Capital Gains Tax for Non-UK Resident Owners of Residential Property
HM Revenue & Customs (HMRC) recently published its response to the consultation on the proposed extension of UK Capital Gains Tax (CGT) to non-resident owners of UK residential property, and confirmed that from April 2015, CGT will apply to non-UK resident individuals, companies, trusts and partnerships.
The charge will only apply to gains accruing from 6 April 2015, although taxpayers will be able to choose whether to:
- Time apportion the whole gain over the whole period of ownership, with the pre 5 April 2015 proportion not subject to CGT; or
- Compute the gain or loss over the whole period of ownership.
Non-residents will be subject to CGT as follows:
- Individuals: 18% or 28%, depending on their level of UK income and gains. The Annual Exemption will be available.
- Trusts 28%, with half of the Annual Exemption available;
- Companies: 20%, with indexation relief available.
Tax Reporting and Payment
Final details have still to be announced, but all non-residents will be required to notify HMRC of the disposal of UK residential property within 30 days. Those already registered for Self-Assessment with HMRC will report gains and losses on their tax return and pay the CGT within the usual time limits (for individuals, 31 January following the end of the tax year of disposal). This will apply to those registered with HMRC’s Non-Resident Landlord (NRL) scheme.
Those not registered for Self-Assessment will be required to pay the CGT due within 30 days.
Annual Tax on Enveloped Dwellings (ATED)
ATED related CGT applies to the disposal of high value residential property, from April 2013, by companies and other “non-natural persons”. To the extent that a gain is ATED related, ATED CGT will continue to apply at 28%, in priority to the new 20% CGT charge for companies. Any non-ATED related gain will be subject to the new charge at 20%. Those companies which benefit from an exemption from ATED, e.g. those carrying on a rental or development business on a commercial basis, will be subject to the new CGT charge at 20% on all post April 2015 gains.
Principal Private Residence (PPR) Relief
Significant consequential amendments are also proposed to the PPR rules, which exempt an individual main residence from CGT. These changes will affect non-UK residents with property in the UK and UK residents with property outside the UK. From 6 April 2015, an individual’s residential property will not be eligible to be treated as his/her PPR unless:
- He/she is tax resident in the country in which the property is located; or
- He/she meets a new 90 day rule for a property in a country in which he/she is not tax resident.
To satisfy the 90 day rule, an individual must have spent 90 midnights in the property. 90 midnights in a UK property may of course affect an individual’s UK tax residence, under the Statutory Residence Test.
The modified PPR relief will continue to be available to non-resident trusts, where the beneficiary meets the requirements.
Further details, and draft legislation are to be published, possibly with December’s Finance Bill. We will update you when we know more. Property owners should have their properties valued at 6 April 2015.
Please contact Katharine Arthur for further information and advice.