New UK Capital Gains Tax (CGT) Regime for Non Residents About to Start

The new capital gains tax (CGT) regime in the UK commences at the start of the 2015/16 tax year – in other words from the 6th of April, 2015.

While we await the passing of the legislation in the 2015 Finance Act, the changes are now broadly locked in, and will affect almost everyone who is not a resident of the UK for tax purposes and who is selling a residential property in the UK.

Key points are as follows:

> In calculating the charge to UK CGT, the usual tax computation will have reference to the property’s market value as at the 6th of April, 2015. However, taxpayers will be given the option to time apportion the whole gain over the period of ownership (pre-6th April, 2015, and post that date), or to calculate the gain (or loss) over the whole period of ownership of the property.

> Non UK resident individuals (and trustees) will be given the same CGT Annual Exemption as is available to UK residents: for tax year 2015/16 this is £11,100 for individuals and £5,550 for trustees.

> Non UK resident individuals will pay CGT at 18% or 28% upon the disposal of a residential property in the UK, depending on the level of their other income and the amount of the gain.

> Principal Private Residence (PPR) relief will continue to be available. However, there will be changes to the rules determining when a UK residential property can benefit from PPR relief.

> Under the new regime PPR relief will only be available (determined on a year to year basis) if the individual making the disposal was tax resident in the same country as the property for that tax year, or the individual meets a new “90 day rule”. To meet the “90 day rule”, the individual must have spent at least 90 midnights in the property in the tax year for which the PPR relief is claimed.

> This means that non UK resident individuals who spend 90 nights a year or more in the UK will still be able to sell their property free of UK CGT. However – and importantly – such individuals will need to be careful that they do not then become UK resident for general tax purposes.

> In particular, such individuals will need to have reference to the UK’s Statutory Residence Test, under which an individual’s UK tax residency status is considered based on the time spent in the UK as well as a “sufficient ties” test (one of which is a 90 day test).

> The new occupancy test does not apply for any year that a spouse or civil partner is UK resident. PRR applies for that year in the normal way in that relief is given to the extent that the property is the taxpayer’s only or main residence.

> A taxpayer will need to report the disposal of the property on a NRCGT return and pay any CGT due within 30 days of the day after the date the property sale is completed (i.e. the date when title is conveyed), unless s/he is within the UK’s self assessment (SA) system.

> If the taxpayer is already within the UK’s SA system, s/he will need to report the disposal on a NRCGT return within 30 days, with payment of tax arising then to be made as part of the normal end of year tax payment to HMRC. Alternatively the taxpayer will have the option to pay the tax at the time of reporting. Reporting and payment will be done electronically.

> For taxpayers already within the SA system the disposal is to be reported on the NRCGT return within 30 days of the conveyance and on the relevant SA tax return. The relevant SA tax return is that for the year when the disposal took place, remembering that a disposal for CGT purposes takes place when the contract to sell the property is agreed. Thus, if unconditional contracts of sale are exchanged on the 31st of March, 2016 and the sale of the property completes on the 1st of May, 2016, the relevant SA return is for the tax year ended the 5th of April, 2016.

> All disposals will have to be reported to HMRC, whether or not there is a tax liability.

> The same reporting process will apply regardless of whether there is a chargeable gain, a gain covered by the annual CGT exemption, or a gain covered by relief such as PRR or a loss.

These are significant changes to the procedures following the disposal of a residential property in the UK.

We invite all who have sold – or are planning to sell – a residential property in the UK to contact GM Tax to discuss how we might help, including computing any capital gains tax that might be payable in the UK and/or in Australia upon the sale of a property in the UK.

If you would like to discuss your situation and plans with a tax consultant who is familiar with tax in the UK and in Australia complete the enquiry form on this webpage. We will be pleased to explore your situation and how we might help.

In the meantime, here is a capital gains tax planning tip: if you are presently non-UK resident, and are planning to return to live in the UK and to sell a property – or indeed any other asset that is showing a gain relative to its original cost – it is generally best to dispose of the asset before becoming a tax resident.

This is because a disposal of the asset when a tax resident of the UK will be computed with reference to its original cost; a disposal while non-UK resident will not be taxed in the UK – unless it is a disposal of a residential property in the UK on or after the 6th of April, 2015, in which case see the commentary above.

We look forward to hearing from you.