Thursday, 28 May 2015

New CGT rules for non residents: what to do now

This is the first UK tax year in which non UK residents will be subject to Non Resident UK Capital Gains Tax (NRCGT) when disposing of their UK residential property to anyone other than their spouse/civil partner or to charity.  Non resident trustees and personal representatives pay NRCGT at 28% on taxable gains and individuals pay 18% or 28%, depending on their taxable UK income and other UK gains in the tax year in which the gain arises.  If non resident companies are not subject to Annual Tax on Enveloped Dwellings – CGT (ATED-CGT), which always takes precedence, they pay NRCGT at 20% instead.  Only closely held companies are affected by NRCGT.

Also, only gains accruing since 6 April 2015 are taxable.  There are options as to how the gain can be calculated.  The default method is just to calculate the actual taxable gain accruing since 6 April 2015 and pay NRCGT on that.  Alternatively, a straight-line time apportionment can be used.  For example, if a property was bought in June 2010 and sold in June 2025, the total number of months of ownership is 180, of which 122 come after 6 April 2015.  The NRCGT is calculated by multiplying the taxable gain over the entire period of ownership by 122/180, or 67.77%.  Either way, for a residential property bought before 6 April 2015, you must know what the property was worth as at 6 April 2015 to work out which calculation basis is most favourable to you. 

There is no requirement to get a property valuation done now, to evidence its value as at 6 April 2015.  However, if any particular feature or the condition of the property is likely to change between now and when the property is sold, and affect its value, it may be a good idea to get a valuation done or at least take date-specific photographic evidence.  If the changes were historic, marshall as much evidence as you can before it disappears.  Similarly, if a property is not residential property at 6 April 2015 but may become so in future, evidence should be preserved now of its non residential status.

Non residents are still eligible to claim the usual CGT reliefs that can apply to residential property, such as Private Residence Relief (PRR) or Lettings Relief.  Evidence of property usage which supports a claim for either of these reliefs should be preserved also.  Bear in mind that for non resident individuals, claiming a relief may have implications for UK residency status generally as PRR is only available for UK residential property if occupied for 90 overnight stays in any tax year.

You have until 6 October 2016 to sell a UK home that qualified at some point during the pre 6 April 2015 period for PRR and not have to pay NRCGT.  PRR always applies to the final 18 months of ownership in this situation.

All non residents only have 30 days after the sale completes to report the disposal and provide a computation of the tax due. A report must be submitted even if there is no NRCGT to pay.  Do not leave it to the last minute as, if a payment needs to be made too, a payment reference must be issued by HMRC before NRCGT can be paid, which could take a few days.  If the non resident taxpayer is registered under the UK’s Self Assessment tax regime, an election can be made to pay any NRCGT as part of the usual tax payment schedule, so for disposals in tax year 2015/2016, any NRCGT would be payable by 31 January 2017 at the latest.  If the taxpayer is not part of the Self Assessment tax regime, all the NRCGT must be paid by the end of those 30 days too.

In contrast to ATED, companies owning UK residential property as part of a property rental business are not exempt from NRCGT.  Furthermore, property that is in the process of being constructed or adapted for use as a residential dwelling is within NRCGT.  Accordingly, where a property is being converted from commercial to residential use, ATED-CGT does not apply until the property is first subject to ATED, meaning on first occupation or when the property receives its first Council Tax rating.  However, no such leniency appears to apply to NRCGT. 
As you will gather from the above, the taxation of UK residential property, particularly for corporate owners, is now a rather complicated affair.