New rules from April 2015 render non-residents who dispose of UK land liable to UK capital gains tax (CGT).
Off-plan purchases are included in the definition of dwelling.
Calculating the chargeable gain may require an April 2015 valuation of the land.
Her Majesty’s Revenue & Customs (HMRC) must be notified of a disposal within 30 days of the conveyance.
The new rules introduced in April 2015 catch disposals of UK residential property by non-resident companies and individuals.
Regime pre 6 April 2015
The general rule was that non-UK residents are not subject to UK CGT on the disposal of UK or foreign assets.
Rules post 6 April 2015
The old rules applied to any asset, but the new rules are only relevant to the disposal of residential property.
The rules cover every non-resident person, company, trust, partners and members of an LLP, or personal representative of a non-resident deceased person, disposing of a UK residential property.
The rules are not intended to be punitive, but rather to put non-residents on an equal footing with residents in relation to the disposal of residential properties. Therefore personal allowances, annual exemptions and other reliefs are available to non-residents.
Where property is let on a commercial basis, or is no longer used as the individual’s principal private residence, these reliefs may diminish over time.
Advice should be taken on the most appropriate time to divest of UK property in order to maximise reliefs, although it is understood that tax may not be the only determining factor.
If a property has been owned since 5 April 2015, only the portion of the gain falling after that date will be subject to UK tax.
Meaning of dwelling
Residential property is defined as a dwelling. It is a building that is used, or is suitable for use as a dwelling, or is being constructed or adapted for such use.
Calculating the chargeable portion
There are three routes of calculating the tax:
Straight line time-apportionment.
Election for retrospective basis.
Where a period of property ownership straddles April 2015, the taxpayer can choose which method of calculating the post-April 2015 portion of gain gives the best result. Care therefore needs to be taken to choose the correct method.
When a change of use occurs over the period of ownership, an adjustment will be made to reflect the time that the building was not used as a dwelling.
The new rules apply to closely-held companies. A closely-held company is one under the control of five or fewer participators.
Institutional investors are outside the scope of these rules if their funds are widely marketed to investors.
Individual cells within a protected cell company are specifically within the new rules, if the cell is equivalent to a closely-held company and the gain is primarily or wholly attributable to that cell.
There is the potential for interaction with Annual Tax on Enveloped Dwellings (ATED) related CGT, and “where part of the gain could be subject to both ATED-related CGT and the new CGT charge, the ATED-related CGT charge will take precedence”.
HMRC will need to be notified of a property disposal within 30 days from the day after the conveyance in all cases.
If the non-resident is in income tax or corporation tax self-assessment or ATED, these liabilities can be paid through the normal filing process.
Otherwise the vendor will need to make an advance self-assessment and pay their tax to HMRC within 30 days.
The conveyancing solicitor is not required to deduct withholding tax and only the person liable to CGT is responsible for delivering a return to HMRC.
Interaction with overseas taxes
If you are required to pay tax on the same gains in your country of residence, you may be entitled to make a claim for double tax relief to reduce your local tax liability.
Written by Anthony Davies ACA CTA
Hilton Sharp & Clarke can help advise on the correct tax to pay, the preparing and filing of tax returns and advise on exit strategy and the tax implications of holding assets as a non-UK resident.
Offices in Brighton (00 44 1273 324163), Haywards Heath (00 44 1403 786788) and Billingshurst (00 44 1444 416416)