- From April 2019, existing non-resident Capital Gains Tax (“CGT”) rules relating to the sale of residential property were extended to include the sale of non-residential property by non-resident individuals, trusts and companies.
- From April 2020, HMRC will enact legislation requiring UK residents to submit Capital Gains Tax returns, as well as paying any CGT due within 30 days of completion of the sale of residential property.
- HMRC have access to land registry records and are increasingly comparing these to tax records to ensure that Capital Gains are being reported by the seller.
Capital Gains Tax Payment Window for Residential Property Gains
Currently, where a CGT liability arises for UK residents on the sale of a residential property, the liability is declared through self-assessment tax returns and payable by 31 January following the tax year in which the gain arises.
From April 2020, where there is a disposal of a residential property by UK resident individuals as well as non-resident individuals and companies, a CGT return will need to be submitted to HMRC within 30 days of the completion of the disposal, and a payment on account of the full calculated CGT liability will be payable within the same 30 day window.
The calculation of the amount payable will take into account an individual’s annual exemption and any unused losses that may be available. A “reasonable estimate” of the individual’s income for the year will need to be made in order to calculate the CGT liability, due to the effect of income levels on the CGT rate to be applied.
For disposals by UK residents, the new reporting requirements will not apply where the gain on the disposal, taking into account any other disposals made in the same tax year, is not chargeable to CGT. This may be the case where the gains are relieved in full by principal private residence relief, or covered by the annual exemption or unused losses.
These reporting requirements will also not apply where the gain arises from the disposal of a foreign residential property in a country covered by a CGT double taxation agreement, or arises to a person taxed on the remittance basis.
Capital Gains Tax on UK Property for Non-Residents
Non-resident individuals are required to complete a Non-Resident Capital Gains Tax Return within 30 days of the sale of any UK residential property.
They are also required to calculate the CGT liability arising and make a payment on account of the full amount of the calculated liability, within that 30 day period.
These rules have been in place since April 2015 and where a gain arises, there are three options that can be used for the calculation:
- Rebasing the cost of the property to the market value at 6 April 2015
- Time apportioning the gain for the pre- and post-April 2015 periods of ownership
- Calculating the Capital Gain under normal rules using the original base cost (usually used where a loss arises)
From April 2019, the scope of this legislation was extended to include the sale of non-residential land and property in the UK by non-resident individuals, trusts and companies. Such disposals have previously been exempt from UK CGT so this expands the tax net.
Where these non-resident CGT returns are completed by individuals already in self-assessment, there was previously the option to make an election to pay the CGT liability through self-assessment instead of within 30 days. This defers the tax payment becoming due until 31 January after the end of the relevant tax year, however, this option was removed from April 2019.
For Capital Gains on the sale of non-residential property, similar options for undertaking the calculation of the gain are available but the rebasing is based around April 2019 instead of April 2015, whilst the time apportioning option will not be available.
All non-UK companies, including close companies, caught by this legislation will be charged corporation tax rather than CGT on their gains.
All non-UK resident persons are also taxable on indirect disposals of UK land, which applies where a person makes a disposal of an entity that derives at least 75% of its gross asset value from UK land, although there is an exemption for investors who hold an interest of less than 25% in the entity.
The gains on indirect disposals are calculated using the value of the asset (e.g. shares) being disposed of rather than the value of the underlying UK land.
If you have any queries regarding any of these changes please get in touch with a member of our tax team.