In 2014, the government announced that it planned to extend the scope of tax on chargeable gains to disposals of residential property by non-residents, including disposals by certain non-resident companies.
Disposal of a Residential Property Owned Before 6 April 2015
Default Rebasing Method
Under the default method, the capital gains tax is calculated on the difference between the property's sales proceeds and its valuation on 5 April 2015.
In calculating the gain or loss on a disposal, it is assumed that the asset was disposed of and immediately reacquired at its market value on April 5, 2015.
Time Apportionment Method
The time apportionment method considers the total year of ownership and the years since 5 April 2015 when calculating the NRCGT. Therefore, only the gains attributable to the period of ownership after April 2015 will be taxed.
The gain under this method is calculated as a fraction of the ownership period since 2015 to the total ownership period.
Retrospective Method
The retrospective method is the general method of CGT calculation for UK residents. Under this method, any rebasing and apportionment are ignored. Instead, the entire gain is brought into the NRCGT computation.
This method may be beneficial for disposals of properties that have made a loss.
Private Residence Relief (PRR)
Generally, there is no Capital Gains Tax (CGT) to pay when a taxpayer sells a property that has been their main residence throughout the ownership period due to the availability of Private Residence Relief (PRR). This relief was introduced to ensure taxpayers are not liable for Capital Gains Tax (CGT) on the disposal of their main residence. Non-residents are entitled to PRR under the same conditions as UK residents.
If the property has been the taxpayer’s main and only residence throughout ownership, they can claim PRR from the date they began occupying the property until the date the property ceased to be their main residence. Additionally, the final nine months of ownership will always qualify for PRR, regardless of whether the property was occupied during that time.
A taxpayer can only designate one property as their main residence at a time. If a non-UK resident owns another main residence overseas, the UK property will no longer qualify as their main residence, and deemed occupation for periods of absence will not apply (except for the final 9 months).
However, if the UK property is the taxpayer’s only residence, it may continue to qualify as their main residence, provided the taxpayer spends more than 90 days in the UK during the relevant tax year.
Example
Alicia, a non-UK resident, acquired a UK dwelling on 6 April 2010 for £100,000. By 5 April 2015, its market value had increased to £200,000. Alicia used the property as her sole or main residence from 6 April 2010 to 5 April 2015. She sold the property on 6 April 2024 for £400,000.
Chargeable Gain Under Three Methods
- The gain using the default method is £200,000 (£400,000 less market value on 5 April 2015 of £200,000).
- The retrospective method gain is £300,000 (£400,000 less the cost of £100,000).
- The gain using straight-line apportionment is £300,000 x 9/14 = £192,857 (as the property has been owned for 14 years since acquisition and 9 years since 6 April 2015).
Private Residence Relief Under Three Methods
- Using the default method, all the period of occupation is before 6 April 2015, so only the final nine months of ownership are eligible for relief. The fraction is, therefore, 0.75/9.
- Under the retrospective method, the entire ownership period is considered (14 years). The period of occupation is 5.75 years (five years of actual occupation plus the final 9 months)
- Using straight-line apportionment, only the period of ownership since 6 April 2015 is considered for the PRR. So, the fraction is 0.75/9 (as for the default method).
Total ownership period | 14 years |
Total ownership period since April 2015 | 9 years |
Actual occupation from April 2010 to April 2015 | 5 years |
Final 9 months | 0.75 year |
Header | Default Method | Retrospective Method | Straight-Line Apportionment |
|---|---|---|---|
Chargeable Gain before PRR | £395,477 | -0.3% | 13.8% |
PRR Calculation | Cell | Cell | Cell |
Total ownership period (in years) | 9 | 14 | 9 |
Period eligible for PRR (in years) | 0.75 | 5.75 | 0.75 |
PRR Available | 16,667 | 123,214 | 16,071 |
Capital Gains | 183,333 | 176,786 | 176,786 |
As the straight-line apportionment method and the retrospective method result in the lowest gain, it is beneficial to use either of these methods.
Disposal of a Commercial Property Owned Before 6 April 2019
The scope of NRCGT on commercial property was only extended from 6 April 2019; non-residents were not under the scope of capital gains in the UK before that date. The disposal of any property owned before 6 April 2019 can be calculated in one of the following two methods:
Default Rebasing Method
Under the default method, the capital gains tax is calculated on the difference between the property's sales proceeds and its valuation on 5 April 2019.
In calculating the gain or loss on a disposal, it is assumed that the commercial property was disposed of and immediately reacquired at its market value on April 5, 2015.
Retrospective Method
This simple method ignores any rebasing or time apportionment for 5 April 2019. The entire gain is brought into the NRCGT. This method is identical to the retrospective method for residential properties and is beneficial for properties that have made a loss.
Disposal of a UK Property Owned After 5 April 2019
Any gain or loss is calculated under normal principles if any residential property acquired after 5 April 2015 is sold.
The disposal of a commercial property acquired after 5 April 2019 is treated in the same way.
Indirect Disposal of UK Property
When a non-UK resident sells shares in a company that derives at least 75% of its asset value from UK land, and the person holds at least a 25% ownership stake, the disposal is classified as an indirect disposal of UK property.
Reporting Deadline
UK residents selling a residential property in the UK need to report the disposal via a CGT return within 60 days from the purchase completion date if there are any taxes to pay.
For Non-residents, the reporting obligation is extended to any UK property, not just residential properties. Additionally, the reporting is compulsory regardless of whether the disposal is made at a loss or if there is no tax to pay.
Temporary Non-Residents
The capital gains tax for Non-residents is significantly lower than that for UK residents, as only the portion of gains after 2015 is taxed. Therefore, HMRC has an anti-avoidance provision that applies to individuals who realise capital gains during a temporary absence from the UK. The provisions are set in The Capital Gains Tax Act 1992, Schedule 10.
The provision states that if a taxpayer is only temporarily non-resident, they must pay tax on the gains during their absence from the UK. A taxpayer is a temporary non-resident if both of the following conditions are met:
- They were UK residents for at least 4 years out of the last 7 years before departure from the UK
- They were non-UK residents for no more than 5 years
Conclusion
In summary, reporting capital gains tax (CGT) as a non-UK resident can be complex, with various rules and methods applicable depending on the type of property and the ownership period. The government has implemented specific rebasing and apportionment methods to ensure fairness, particularly for properties owned before the introduction of non-resident CGT rules. Non-residents also benefit from allowances and reliefs, such as Private Residence Relief, under conditions similar to UK residents.
Understanding the applicable reporting deadlines is crucial, as non-compliance can result in penalties. Non-residents must report all UK property disposals, whether residential or commercial, within 60 days of completion, regardless of whether a gain or loss is made. Additionally, indirect disposals and anti-avoidance provisions for temporary non-residents highlight the tax system's complexity for non-UK residents.
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