Since April 2015 non-UK residents have had to pay Capital Gains Tax on their sales of UK residential property.

Who is affected?

This applies to non-resident individuals holding UK residential property directly or via a partnership, or non-resident trusts. Charities are excluded. Non-resident companies are subject to Corporation Tax rather than Capital Gains Tax on gains from UK property or land. 

The Main Residence Election was also restricted. Before April 2015, a non-resident would have been able to elect the disposed property to be their main residence and thus exempt it from CGT. However, a non-resident may now only elect a UK residential property to be their main residence if they spend at least 90 days in a tax year staying in one or more UK residential properties.

What is affected?

The charge is applied to gains realised on the disposal of UK residential property but also property that has the potential to be used as a residence. It therefore includes property which is currently being built or altered for residential use.

The charge applies to both owner-occupied and rental properties.

How is the charge calculated?

Non-residents are charged CGT on the portion of their capital gain that occurred after April 2015. There are three methods to calculate this portion. The taxpayer can elect the most tax-efficient method for them:

  • Rebasing Method (Default) – The default method is to “rebase” your cost at the market value at April 2015. 
  • Time Apportionment Method – You can also elect to calculate the post-April 2015 gain/loss as if the value of the property increased linearly over your period of ownership.
  • Total Gain/Loss – Alternatively you are able to take the total gain/loss over the period of ownership. This is only likely to be preferable if you have made a capital loss.

Once the gain has been calculated the tax is calculated using the usual rates:

  • Individuals – Taxed at 18% for basic rate taxpayers and at 24% for higher and additional rate taxpayers after removing their annual exempt amount.
  • Trusts – Taxed at 24% after removing their annual exemption.

When do you have to report and pay?

All disposals must be reported to HMRC within 60 days of completion whether a gain or loss has been made.

The tax is also due along with the reporting within 60 days of completion unless the taxpayer also fills in a UK self-assessment tax return. If they do then the tax will be payable according to the usual timing for self-assessment.

How can you utilise any losses?

Realised losses from such sales can only be set against gains realised on other UK residential property in the same tax year or carried forward to later years. However, if the non-resident subsequently becomes a UK resident, the unused losses on UK residential property can be set against all other chargeable gains.

Unused losses on UK residential property realised by UK residents who have since become non-residents may be set against gains on UK residential property subsequently realised when non-resident.

If you need Capital Gains Tax advice or would like to find out more about current CGT allowances and tax relief, please don’t hesitate to get in touch.