Taxes on selling property for non-UK residents
The UK’s tax system for taxing non-UK residents on sales of UK property is complex. Recent legislation changes have made it more complex than ever.
Historically, non-UK residents were not generally within the scope of UK Capital Gains Tax (CGT) on sales of their UK assets, except where the non-resident used the asset for a trade carried on in the UK. In 2013, the UK Government brought homes owned by companies within the scope of UK CGT. In 2015, the charge was extended to residential property generally.
From 2019, residential and commercial property as well as so called “land rich entities” are all within the scope of UK CGT. Non-UK residents selling residential property should note that the non-resident is required to give particulars of the disposal to the UK tax authorities within 30 days of the disposal. This remains the case even if the disposal gives rise to no capital gain and to no tax charge.
From 1 April 2019 for companies and 6 April 2019 for everyone else, a non-resident is within the scope of UK CGT on:
- Assets used for the purposes of a trade carried on in the UK through a permanent place of business
- UK residential and commercial property
- Substantial interests in entities deriving value from land as defined
Where property is acquired or developed with a view to resale, the gain on sale can sometimes be taxed as income under anti-avoidance rules – this applies to both UK and non-UK residents.
Individuals who have been UK resident, but who are temporarily non-UK resident, can be subject to UK tax on capital gains made while non-resident if they return to the UK.
An entity is regarded as deriving its value from land if at least 75% of the value of the entity derives directly or indirectly from UK land.
A person has a ‘substantial interest’ in an entity if (broadly) the person owns or owned at least 25% of the company at any time in the two years before the disposal.
The property test looks at the gross value of the company’s assets, ignoring any liabilities. Where a group of companies or entities is disposed of, the 75% property test is looked at on a group basis. There are rules that allow tracing through subsidiary companies to determine how much of any company’s value derives from UK property.
For the 25% holding test, ‘entity’ means a company, partnership or trust. In deciding how much of an entity a person holds, their interest is aggregated with interests held by connected persons.
Special rules apply to property funds – collective investment vehicles (CIV) that hold UK property. An investor in a property CIV will be subject to CGT on disposals of his / its holdings, even if these are less than 25%. However, there are special rules whereby the property fund itself can elect to be treated as tax transparent or exempt.
Foreign pension funds are exempt from UK CGT in the same way as their UK counterparts.
Under the rules applying up to April 2019, there was a general exemption for widely held companies and funds and for student accommodation and other communal residential property. These exemptions no longer apply.
The majority of the UK’s tax treaties allow the UK to impose the CGT as explained above. However, a small number may prevent a non-resident being taxed on gains from UK property entirely while some others might permit the non-resident to be taxed only on direct disposals of property.
Where the non-resident owned UK property at 6 April 2019, in computing the gain he is allowed to use the market value of the property at specified dates. These are:
- For residential property – 5 April 2015
- For commercial property and land rich entities – 5 April 2019
The taxpayer can in some cases elect to use a time apportionment basis or original cost.
It may well be worth obtaining either a formal valuation or informal contemporary evidence of the valuation of the property at the relevant valuation date, as this could be more difficult to do when the property comes to be sold, perhaps many years later.
Non-resident individuals are subject to CGT at the same rates as UK residents (we more information here).
Non-resident companies are subject to corporation tax at the normal rates (we have more information here).
Non-residents selling UK property or land rich companies may be able to benefit from reliefs such as Substantial Shareholding Exemption or the relief for properties used in a trade where the relevant conditions are met.
Like any other individual, a non-resident individual may in principle be able to claim a measure of relief from tax (“Principal Private Residence Relief”) where the property sold is or has been their home. However, the general rule (applying to residents and non-residents alike) is that a property can qualify for relief for a tax year only if:
- The person selling the property was tax resident in the same country as the property is located; or
- The person spent at least 90 midnights in the property in the year.
Given that in many cases a person consistently spending 90 midnights in the UK may become tax-resident here, the practical effect of the rules will in many cases be that a non-resident will be unable to claim the relief.
Each separate disposal must be notified to HMRC within 30 days of completion, regardless of whether a gain arises. This must be done by using HMRC’s online reporting facility.
If the disposal gives rise to a tax liability, HMRC will email a payment reference with details of how to pay. Interest and penalties will apply if the return is made late (even if no tax is due) or if any payment due is made late.
If you are already within the normal self-assessment regime (as will normally be the case where the property has been let and UK tax has been payable on the income) or have filed a return under the ATED regime for the property in the tax year preceding the disposal, the rules are slightly different. The obligation to notify HMRC of each separate disposal within the 30-day deadline remains unaltered, but you do not need to compute or pay the tax at that time.
You can instead elect to do so at usual time (normally by 31 January following the end of the tax year) as part of your normal self-assessment return. It appears, however, that you are still obliged to notify the amount of the gain itself under the new regime and within the 30-day deadline.
For more information or help from one of our property tax specialists, please contact us using our enquiry form.