Non Resident Capital Gains Tax

May 5, 2022

Many non-residents are unaware of the possible Non-Resident Capital Gains Tax exposure on UK property sales or the need for returns and early payment.

From 6 April 2015, non-UK residents became subject to capital gains tax (CGT) on disposals of residential property situated in the UK. This charge was extended, effective for disposals made on or after 6 April 2019, to both direct and indirect disposals of interests in UK land (land includes buildings and structures whether residential or otherwise, e.g., commercial).

An indirect disposal is a disposal of a 25% (or more) shareholding interest in a company where 75% of its gross assets are attributable to UK land and buildings (TCGA 1992, Sch 1A).

Rates of CGT

Disposals include, for example, actual sales, outright gifts and gifts into trust with applicable rates for individuals of 18% and/or 28% or 10% and/or 20% with respect to disposals of residential or non-residential property, respectively.

Need for a return and tax payment to HMRC

Where a disposal of land occurs, the non-resident is required not only to file an appropriate return with HMRC but also to discharge any CGT liability arising on the disposal at the same time as making the return (FA 2019, s 14 and Sch 2).

Where multiple disposals are made within the same tax year, a separate return must be made for each property (unless exchange of contracts and completion occur on the same date).

Deadline based on exchange or completion?

The return is required to be delivered to HMRC on or before the 60th day following completion (not exchange) of the disposal with respect to disposals made on or after 27 October 2021 (FA 2022, s23(2)) to comply with the new rules around Non-Resident Capital Gains tax.

For disposals prior to this date, the deadline was the 30th day following completion. However, not only is a return required but, in addition, any notional CGT arising on the disposal must also be paid by the filing date (i.e., the date by which the return must be made to HMRC) (FA 2019, Sch 2, paras 6 and 17(1)).

However, no return is necessary if the filing date would otherwise fall on or after the date on which the non-resident has delivered to HMRC the ordinary tax return containing a self-assessment that takes account of the disposal or would otherwise fall on or after the date on which the non-resident has (by notice) been required to deliver to HMRC the ordinary tax return for the relevant tax year.

Notional CGT computation

In calculating the notional CGT charge, capital losses may be deducted on disposals where the dates of exchange (not completion) of such disposals giving rise to the losses occur prior to the date of completion of the disposal giving rise to the capital gain. Note that, inter alia, non-residents are entitled to the CGT annual exempt amount and private residence relief.

Unfortunately, even if no notional CGT charge arises, a return must still be filed. Penalty and interest charges A failure to file a return or pay any notional CGT on time will result in interest charges and a late filing penalty.

 

Repayment claims

Repayment claims may be lodged, where appropriate. For example, a return may have been filed and notional CGT discharged on the basis of an assumed 28% rate, but later in the tax year it becomes clear that an 18% rate is the correct rate.

For help with meeting these obligations please get in touch.

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