HM Insights

New Capital Gains Tax Rules for Non-Residents selling Residential Property

Prior to 6th April 2015, individuals resident outside the UK were not subject to Capital Gains Tax on the sale of UK assets. A change to this legislation took effect on 6th April this year specific to sales of residential property. The result of the change means that any sale of UK residential property by a non-resident could be subject to capital gains tax in the UK.

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Reporting Requirements

The sale must be reported to HM Revenue & Customs within 30 days of the conveyance. There is an on-line process in place here. This reporting requirement applies whether tax is payable or not.

Tax Charge

Tax is calculated on the amount of the gain which accrued post 5th April 2015. This will likely mean that there will be few due to pay tax in the first few months of 2015/16, but the number will steadily increase over time. There are three ways in which the accrued gain can be calculated as follows:

  1. Default method – The property must be valued at 5 April 2015, and the chargeable gain calculated on the difference between that figure and the proceeds received.
  2. Straight line apportionment - The chargeable proportion of the gain is calculated on a daily basis, with only the post 5 April 2015 proportion being taxable. No valuation is required for this method, but an election must be completed.
  3. Retrospective basis – The entire the entire gain/loss is chargeable, not just the post 5 April proportion. Again, an election is required, and this method will be most beneficial where the disposal results in loss, as the entire loss would then be available for offset against other gains. Although, because the other gains would only crystallize when an individual resumed UK residence, and so in reality the use of the loss may be limited.

Tax Payable

If the seller is registered for Self Assessment, they can opt to pay the capital gains tax due at the usual payment date, 31st January following the end of the tax year in which the gain arose, so for 2015/16 the payment date would 31st January 2017. (The reporting of the gain still must be done within 30 days though).

If the seller is not registered to pay tax in the UK the CGT must be settled within 30 days of the date of conveyance also. The payment can only be made once the sale has been notified to HMRC and they have issued a reference to which payment should be allocated.

Penalties

Penalties will be charged if either the reporting of the gain, or payment of the tax is late.

Summary

The new rules came into force on 6th April 2015 and apply to individuals, partners in a partnership, Trustees and personal representatives of a deceased non-resident individual (the details above deal with individuals only).

All sales of property must be reported to HMRC within 30 days of conveyance. Chargeable gains will be calculated to the extent they accrued post 5th April 2015. Tax may be payable within 30 days of the date of conveyance. Penalties will be charged on both late reporting and late payment of tax. An election for the basis of calculation of the gain, or a valuation as at 5th April 2015, may be required, and so in order to report within the very limited timescale, the gain position must be considered as early as possible during the sale process.

If you have any questions about these changes or need assistance with any Capital Gains Tax issues please get in contact with our Tax Manager Amber Heron on 0141 227 9659 or email amber.heron@harpermacleod.co.uk.