From April 6th, 2015, non-UK residents are subject to UK capital gains tax on the sale of UK residential property. Previously such gains could have escaped UK tax free and there was no need to report the sale of this property. However, this new non-resident capital gains tax (NR CGT) does not affect other UK assets and the usual capital gains tax rules will apply.
When determining the amount of gain chargeable to NR CGT we need to calculate the gain either side of 5th April 2015. The gain made on the property in the period to 5th April 2015 will still be subject to the old rules whereby taxpayers who remain outside of the UK for 5 complete tax years will not pay capital gains tax. The gain made from 6th April 2015 to the date of sale will be treated separately and subject to the new rules. There are two ways in which to calculate the gain in both periods.
Calculating the gain
This new legislation included some transitional provisions that provides tax relief for any gain arising before the change in these rules. They provided two alternatives:
Option 1 – Rebasing
In this case you elect to use the value of the property on 5th April 2015 and calculate the increase in property value from this point. This process is known as “rebasing”. A valuation can be made on the date of disposal and does not need to be made prior to 6th April. It is therefore sensible to record the current condition of the property so that an accurate retrospective valuation can be made.
Option 2 – Apportioning the gain
The second method will be to calculate the gain over the whole period you have owned the property and then apportion this gain to the period from the later of; the date you became non-UK resident or April 6th, 2015.
Allowances & Reliefs
Non-residents will still be able to benefit from the annual exemption. The first £11,100 of UK capital gain will be tax-free. Gains made on residential property in excess of this amount will be subject to 18% or 28% depending on the amount of gain and also the levels of other UK sourced income.
Principal Private Residence relief (PPR) is available to reduce the taxable gain on the sale of an individual’s property. The periods of ownership that qualify for PPR relief includes
- Period where you owned and occupied the property as your main residence
- The last 18 months of ownership where you had previously owned and occupied the property as your main residence.
- Up to £40,000 of gain that relates to a rental period of a property that was also considered your PPR for a period.
The availability of these reliefs must be viewed in conjunction with the apportionment of the gain before and after 6th April 2015.
The disposal of UK residential property must be reported to HMRC on a NRCGT return within 30 days of the conveyance even if there is no capital gains tax due.
Previously it was possible to defer the capital gains tax to the due date of your Self-Assessment Tax Return. From 6th April 2020, this option is no longer available and the tax must be paid within 30 days of completion. This article should be read in conjunction with – https://pjdtax.co.uk/updates/capital-gains-tax-on-uk-residential-property/.