Summary of charge
The default position is that for non UK tax residents selling or transferring UK residential property, the charge only applies to gains arising on or after 6 April 2015 so that for properties owned prior to that date, the properties will be rebased to their market value as at 5 April 2015 for the purposes of calculating the gain. If a property was held prior to that date, it is possible for the owner to elect to time apportion the gain or to calculate the gain (or loss) with reference to the whole period of ownership. Such an election can be delayed until the disposal is made but is then irrevocable.
Non resident individuals will have the benefit of an annual exemption (£11,100 for 2015/16). The tax rate will be 18% or 28% depending on overall levels of income and gains in any given tax year. For non resident trusts, the tax rate is 28% and, as with UK resident trusts, trustees will have an annual exemption equivalent to 50% of that which applies to individuals.
Executors of a deceased person who was non UK resident will also be brought into this regime with any tax being charged at a rate of 28%. An annual exemption is available for a disposal made in the tax year of death or in the following two tax years.
As well as sales of UK property, transfers of title even if for no consideration, are also caught and will trigger a requirement to report the disposal to HMRC (even if no tax is due).
It is crucial that solicitors acting for a non resident are aware of the reporting requirements and advise clients accordingly. Any disposal by a non resident must be reported to HMRC within 30 days of the completion date. This is the case even if (1) there is no gain, (2) where there is a loss, (3) where the transfer qualifies for relief (such as principal private residence relief) or (4) where the gain is covered by the annual exemption.
The reporting can be done online and should be accompanied by a tax computation. If the non resident is already registered for self assessment, any tax due will be paid in accordance with the usual tax payment deadlines, but if someone is not registered for self assessment and does not therefore complete annual tax returns, any tax due will need to be paid within 30 days of the disposal.
For those who need to pay the tax within 30 days, once the report has been made online to HMRC, HMRC will send a payment reference and details of how to pay. Depending on an individual's annual taxable income and how far into the tax year the disposal is made, it may be necessary to estimate the annual taxable income with it then being possible to send in an amended return at a later date.
If a solicitor or other agent has been asked to deal with the reporting, the client will need to authorise HMRC to liaise with that agent by signing a letter and sending by email to HMRC.
It's important to note that penalties will apply if a non resident reports a disposal after the 30 day deadline or misses the payment deadline, so care must be taken to deal with the reporting timeously.
Points to note
Where a property is jointly owned, each non resident owner needs to report the disposal of their individual share or interest in the property. This is the case even with a transfer of title.
Principal Private Residence Relief (PPR) may be available but the rules have changed so that as well as being able to demonstrate that the property is the taxpayer's only or their main residence, PPR will only be available in any given tax year if the owner of the property or their spouse or civil partner is UK tax resident or, if non resident, if either they or their spouse or civil partner has spent at least 90 midnights in the property. This may be a difficult test for many non residents to satisfy and consideration needs to be given to the interaction with the statutory residence test, used to determine an individual's tax residency status.
It's also important to note that for those who were non resident either when they purchased the property or some time after but are UK resident at the time of disposal, rebasing to 5 April is not permitted and the base cost will be with reference to the purchase price of the property so timing of a disposal could be crucial for those who may fall into that category.
Losses arising on the disposal of UK residential property can be offset against gains.
It is well worth non residents who acquired property prior to April 2015, to consider instructing a valuation as at 5 April 2015 to consider what their likely base cost will be (unless they elect to use one of the other methods). Consideration should be given to the condition of the property at this time and this should be documented and possibly photographed.
Great care should be taken when non residents are purchasing UK residential property to consider how best to take title to the property. Who is actually going to be living in the property - if it is being bought for a child to live in, perhaps while they attend University in the UK, should consideration be given to them going on the title? Alternatively, might it be sensible to take title jointly to secure the benefit of two annual exemptions? These considerations need to be weighed up carefully against other factors, for example, the income tax considerations if the property is being bought to rent out, as it may be that one prospective owner is entitled to a UK income tax personal allowance while the other is not, or that one has a lower level of UK income.
Careful records of purchase and sale costs as well as capital expenditure incurred on the property should be retained.
Finally, for those advisers dealing with residential conveyancing, it's important to flag up the reporting requirements to clients who may have an obligation to report, at an early stage and agree who is taking responsibility for the reporting to HMRC.
For further advice on CGT and tax and succession planning for non residents, please contact us on the details below.