Background
Non-resident individuals disposing of UK residential property are subject to the non-resident capital gains tax (‘NRCGT’) at the higher rates of 18% or 28% applicable to residential property gains. From April 2019 these rules have been extended so that gains on the disposal of any UK commercial property held by a non-resident ‘person’ are also taxable.
In addition from April 2019 all residential property gains by non- resident companies have been brought into the corporation tax regime.
Gains on UK commercial property by non-resident individuals and certain trustees are now subject to capital gains tax (CGT) at the normal rates of 10% or 20%, whereas gains made by non-resident companies will be subject to corporation tax.
Detail
Prior to 6 April 2019, it was generally only direct disposals of UK residential property by non-UK resident persons that were chargeable. From 6 April 2019, the liability to tax has been widened to not only include the disposal of commercial property and the removal of the exemption for direct disposals made by companies, but also the indirect disposal in UK land by a non-resident.
From April 2019, a disposal by a non-resident of an interest in an entity, such as a company or certain trusts, that are ‘property rich’ are also subject to either CGT for individuals or corporation tax for companies, if the non-resident holds an interest of 25% or more in the entity, or has done at any point in the 2 years prior to the disposal (including the period before April 2019).
Broadly, an entity is ‘property rich’ if, at the time of the disposal, 75% or more of its gross market value is derived, directly or indirectly, from UK land, whether commercial or residential. Exemptions are available for gains arising on the disposal of interests in companies where the underlying UK land is used by the company for a qualifying trading purpose.
For disposals relating to an interest, either directly or indirectly, held in land prior to 6 April 2019, special computational rules apply. For interests which were not already chargeable to tax prior to 6 April 2019, the UK property is rebased to its market value on 5 April 2019 when calculating the gain, so that only increases in value from that date will be subject to tax. However, an election can be made to instead use the total gain, or loss, arising since acquisition.
The rate of tax which will apply are the same as applicable to UK resident persons.
Non-resident individuals will be subject to CGT on a gain on disposal of a residential property at 18% for basic rate taxpayers and 28% for those with income above the basic rate band. A disposal of a direct or indirect interest in commercial property will see gains chargeable to CGT at 10% or 20% depending upon the individual’s income levels.
For non-resident companies the gain will be subject to corporation tax, currently 19%, irrespective of the type of disposal.
From 6 April 2019 property disposals by non-resident individuals and trustees must be reported and tax paid on account within 30 days of completion of the disposal. There are limited exceptions, such as for ‘no gain/no loss’ transfers between spouses, but it is no longer possible to delay reporting the CGT on the disposal until filing a self-assessment return.
The rules surrounding the taxing of UK property held by non-residents is complex and wide ranging. If you would like more information on how the legislation applies, or how the new rules may affect you, please contact our Tax Director, Jenny Marks.
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