Peter Rayney discusses the basic mechanics of the non-resident capital gains tax charge on UK residential property.
Historically, non-residents were not generally subject to UK capital gains tax (although some special rules could trigger a UK CGT charge in certain cases). However, this all changed on 6 April 2015, when the non-resident capital gains tax (NRCGT) charge was introduced (in TCGA 1992, s 14B and Sch B1). These provisions placed ‘non-residents’ on an equal footing with UK residents in relation to CGT on residential property.
Broadly speaking, NRCGT operates on the disposal of an interest in UK residential property by ‘non-resident’ individuals, trusts, and (closely-held) companies. The charge covers disposals of dwellings and ‘related’ gardens and grounds (see TCGA 1992, Sch B1, para 4). It also extends to the sale of ‘off plan’ residential interests.
In the relatively rare cases where an ATED (annual tax on enveloped dwellings) CGT charge arises charge in respect of a company, that charge takes precedence.
Calculating the post-5 April 2015 gain/loss
To ensure there is no retrospective charge on ‘existing’ residential properties, only the gain arising after 5 April 2015 is charged to NRCGT.
The default calculation of this gain or loss is based on the value of the property at 5 April 2015 – often referred to as ‘rebasing’. Alternatively, it is possible to elect to compute the post-5 April gain (or loss) using time-apportionment, or to use the entire gain or loss over the total period of ownership.
NRCGT losses are effectively ‘ring-fenced’ and can only be offset against NRCGT gains of the current and future years.
A ‘simplified’ calculation of the NRCGT gain is shown below:
£
Sale proceeds X
Less: Incidental costs of disposal (X)
Net sale proceeds X
Less: 6 April 2015 value (or if later purchase cost) (X)
Less: Post-5 April 2015 improvement expenditure (X)
NRCGT gain/loss X*
* A non-resident company can deduct indexation allowance (up to December 2017) in calculating its taxable gain.
HMRC will often accept a competent independent valuation of the property at 5 April 2015, although it can challenge the value and request an opinion from the District Valuer if it does not agree with it.
If a ‘time-apportionment’ election is made, the capital gain/loss is calculated over the total period of ownership. The chargeable post-5 April 2015 element of the gain is computed on a time- apportionment basis by reference to the post-5 April 2015 period/total period of ownership (see TCGA 1992, Sch B1, para 6). Appropriate adjustments are made for periods of ‘mixed-use’ or changes in the use of the property.
NRCGT principal private residence exemption
If the relevant property was previously used as a principal private residence (PPR) before the individual became non-resident, they may still be able to benefit from a modified PPR exemption on a subsequent disposal. However, this means that (for post-5 April 2015 periods) they must satisfy the special occupancy test, but the last 18 months of ownership will still count as a qualifying PPR period (TCGA 1992, ss 222A, 222B).
Individuals must nominate the relevant particular property to be treated as a PPR in their NRCGT return (see below).
Calculation of NRCGT and filing return
The NRCGT tax rate is the same as for UK resident individuals – thus 28% (and/or 18% if they have ‘basic rate’ tax band capacity) and 28% for trusts. Non-residents are also entitled to deduct the annual CGT allowance (£11,700 for 2018/19).
Non-resident ‘close’ companies will pay NRCGT at 20% (being the current rate specified by TCGA 1992, s4 (3B), TCGA 1992 and can deduct indexation allowance (but capped at the RPI to December 2017) in computing their NRCGT gains.
NRCGT returns must be filed with HMRC (even where there is no taxable gain) within 30 days of the property being conveyed. Penalties are chargeable for late filing, although some taxpayers have successfully resisted them by advancing a ‘reasonable excuse’ argument (see, for example, McGreevy v Revenue and Customs [2017] UKFTT 690 (TC).
Practical Tip :
Non-residents within the UK self-assessment regime pay their NRCGT by the normal 31 January date following the tax year of disposal. Other non-residents must pay their NRCGT within 30 days of the conveyance.
