Since the start of the 2015/16 tax year the UK has required capital gains tax to be considered when a non UK resident individual sells a residential property in the UK.
Before the 6th of April, 2015 no capital gains tax was payable.
Key points are:
- In calculating the charge to UK CGT the tax computation has reference to the property’s market value as at the 6th of April, 2015.
- However, taxpayers are given the option to time apportion the gain since the property was acquired – ie over the whole 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) are given the same CGT Annual Exemption as is available to UK residents: for UK tax year 2017/18 this is £11,300 for individuals and £5,650 for trustees.
- Non UK resident individuals 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 continues to be available.
- Under the new regime PPR relief is only available (determined on a year to year basis) if the individual making the disposal is tax resident in the same country as the property for that tax year, or the individual meets a “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 are 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.
Importantly, a non resident taxpayer selling a residential property in the UK is required to report the disposal of the property on a Non Resident CGT (NRCGT) return within 30 days of the day after the date the property sale is completed (i.e. the date when title is conveyed).
Any CGT owing is also to be paid to HM Revenue within the same timeline, unless the taxpayer is already within the UK’s self assessment (SA) system.
Most who are non UK resident and who are letting a UK property will already be lodging UK tax returns each year under the SA system.
If the taxpayer is already within the UK’s SA system, s/he will still 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.
The NRCGT return is lodged online through the HM Revenue web site.
Taxpayers who are already within the SA system report the disposal on the NRCGT return within 30 days of the conveyance and on the SA tax return for the tax year in which the property is sold.
More specifically, the relevant SA tax return is 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, 2018 and the sale of the property completes on the 1st of May, 2018, the relevant SA return is for the tax year ended the 5th of April, 2018, not 2019.
All disposals have to be reported to HMRC on a NRCGT return, whether or not there is a tax liability.
The late lodgment of a NRCGT return can be expected to trigger a late filing penalty.
We invite all who have sold – or are planning to sell – a residential property in the UK to contact Collett and Co Tax to discuss how we might help, including preparing capital gains tax computations under the tax rules of the UK and Australia to identify whether there is any capital gains tax payable in either or both countries.
Any CGT payable in the UK should be creditable against the CGT payable in Australia on the same disposal.
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 our enquiry form.
We will be pleased to have a free initial discussion to explore your situation, and to explain how we might help.