Home Sweet Home? Non-Resident CGT Charge And UK Residential Property

Malcolm Finney explains how non-UK residents with residential property in the UK can get caught in the capital gains tax net.

For many years up to 5 April 2015, individuals who were non-UK resident have not been exposed to capital gains tax (CGT) on capital gains made on disposals of assets, even where the assets were located within the UK (e.g. a UK house/flat). So, for example, where an individual who owns a buy–to-let flat whilst UK resident decides to leave the UK and live in France, on a sale of the UK flat no CGT charge would arise.

Post 5 April 2015

However, this has now changed. From 6 April 2015, if an individual is not resident in the UK and sells a UK residential property, a CGT charge might arise on any capital gain made. In other words, selling whilst non-resident no longer precludes a CGT charge from arising. Technically, a property is sold (for CGT purposes) when ’exchange’ not ‘completion’ takes place. Note, however, that the new CGT charge does not apply to other assets (e.g. shares) located in the UK, only UK residential property.

Rebasing vs. time apportionment

One piece of good news is that only that proportion of the overall gain that relates to the period after 5 April 2015 is subject to the new charge. To calculate this element of any overall gain, either the market value of the property at 5 April 2015 (so-called ‘rebasing’) is used, or a simple straight-line time apportionment of the whole gain obtained over the period of ownership is carried out. The individual may choose which option to take.

Example 1: Rebasing vs. straight-line apportionment

Tom Tit bought a buy to let flat for £100,000 on 1 January 2006. He left the UK for Spain in March 2014.

The flat’s value on 5 April 2015 was £320,000. The flat was sold for £350,000 on 31 December 2016.

Capital gain using rebasing = £350,000 - £320,000 = £30,000.

Capital gain using straight-line apportionment = [£350,000 - £100,000] x 21/132 = £39,772.

Rate of CGT, reporting and payment

The rate of CGT for non-UK resident individuals is the same as for UK resident individuals, i.e. 18% and/or 28%. Any gain needs to be reported, and any accompanying CGT paid within 30 days of the day after the date of ‘completion’ (unless the individual is already within the UK’s self-assessment system, in which case although the disposal must be reported within the 30 day period, actual payment of any tax may be made as part of the normal end of year tax payment).

Private residence relief

If the UK property disposed of is, or has been, the main or sole residence of the individual throughout its period of ownership, or some part thereof, then principle private residence relief will be available. However, for periods post 5 April 2015 such relief is only available if a so-called new ‘occupancy test’ is satisfied (assuming both the individual and spouse are non-UK resident). The test is met for a tax year if the individual spends at least 90 nights in the property in that tax year (or nights spent by the individual plus spouse amount to at least 90 nights; but with no double counting).

Example 2: Last 18 months private residence relief

Barry acquired a UK property in 2000 and lived in it until he left the UK on 1 April 2015 to live in France.

Barry sold the property on 1 September 2016. Barry never lived in the property once he left the UK.

For the tax years 2015/16 and 2016/17, Barry did not satisfy the occupancy test and hence, prima facie, no private residence relief applies to the property for the period 6 April 2015 to 1 September 2016.

However, as prior to 6 April 2015 the property qualified as Barry’s main residence, then the last 18 months of ownership automatically qualify for private residence relief (as would apply to a UK resident selling a UK residence). Thus, no capital gain subject to capital gains tax arises on Barry’s sale.

Practical Tip:

For the non-UK resident individual whose UK property qualified for private residence relief prior to 6 April 2015 and who intends to sell whilst non-UK resident, a sale on or before 5 October 2016 should be seriously considered.