Capital gains tax on UK residential property – what it means for non-UK companies, partnerships, non-resident individuals and trusts
With effect from 1 April 2015, capital gains tax (CGT) will become payable in respect of any gain realised on the sale of UK residential property by a non-UK resident individual, partnership, or a non-UK company which is in narrowly controlled ownership.
The rate of tax will be 20% for non-UK companies, and 18% or 28% for non-UK resident individuals.
How will the tax charge be calculated?
The extended CGT charge will only apply to gains accrued and realised on or after 6 April 2015. It will not apply to gains arising before this date. To calculate the charge on a property purchased before this date taxpayers may either:
- ‘rebase’ the property to its market value on 6 April 2015 (this is the default position);
- ‘time apportion’ the whole gain over the period of ownership; or
- compute the gain (or loss) over the whole period of ownership.
In calculating the tax payable, non-resident individuals will have access to the annual exempt amount (£11,000 in the 2014/15 tax year), and will be able to offset any losses made on UK residential property.
How will the tax be collected?
The process of reporting and collecting the extended charge from non-residents is still to be finalised. HMRC’s current intention is that a non-resident disposing of UK residential property will need to notify HMRC within 30 days of the disposal.
Non-residents who already make an annual self-assessment return to HMRC will be able to pay amounts due as part of their next self-assessment. Other non-residents must pay during the 30 day notification period following their disposal.
What is residential property?
Residential property is property used, or suitable for use, as a dwelling, including property that is in the process of being constructed or adapted for such use. Communal residential property (including care homes, nursing homes and some types of purpose built student accommodation) will generally be excluded from the charge.
Non-UK resident individuals
I live in my UK property. Can I claim any reliefs?
Non-resident individuals in scope of the charge may be eligible for a relief called principal private residence relief (PPR). However, a non-UK resident can only claim PPR if the property is elected as that person’s only or main residence in the tax year of the disposal. A UK residence can only be so elected for a tax year if the non-resident owner has stayed in the property for at least 90 midnights in that year.
I hold my property in a non-UK company which is within the charge to the annual tax on enveloped dwellings (ATED). How do the charges interact?
The capital gains charge on disposals of property subject to ATED will remain at 28%. To prevent potential double taxation, 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.
I hold my property in a non-UK company. Will I have to pay CGT if I sell the company?
No. The new CGT charge applies only where residential property assets are sold, not where a company which owns such property is sold.
What if I have other UK capital losses?
Losses on disposals of UK residential property will be ring-fenced for use against gains on such properties that arise to the same non-resident in the same tax year. Unused losses will be available for carry forward to later years.
What is a “narrowly controlled company”?
The charge will not extend to disposals of residential property by widely held non-resident companies because of the Government’s concern that it would dissuade non-resident institutional investors from owning and developing UK residential property.
However, the private investment vehicles of individuals, families or small groups of individuals or families will be in scope if they satisfy a narrowly controlled company test. Broadly speaking, a narrowly controlled company is a non-resident company controlled by five or fewer individuals or companies which are themselves narrowly controlled.
What if the non-UK company, or an associated entity, has other UK capital losses?
Non-resident companies will benefit from an option for groups of companies to operate a limited form of pooling to offset gains and losses made on disposals of UK residential properties by different members of the same group. Where a non-resident company does not belong to a group, or where no election for pooling by group companies is in place, losses on disposal of UK residential property will be ring-fenced. Such losses can only be used to offset gains on such UK residential property arising to the same company in the same period, or carried forward to later periods.
For UK partnerships, chargeable gains will be apportioned between the UK resident and non-UK resident partners. Non-UK partnerships which are treated as transparent for UK tax purposes will receive similar treatment; chargeable gains will be apportioned between the UK resident and non-UK resident partners.
All types of non-resident trust will be in scope of the extended charge. In practice, this means that trustees will be subject to CGT on gains realised on the disposal of UK residential property.
What steps should I take?
- If you are likely to be within the charge, consider getting your property valued in April 2015 to form the basis for the calculation of any gain on a disposal
- If you are planning to dispose of your property after the charge has been introduced, take advice on any steps which you can take to enable PPR to be claimed (bearing in mind that this may affect your non-UK tax residence status)
- If you hold your property through an investment vehicle, take advice on whether the vehicle is “narrowly held” or not