Introduction
Non-resident individuals, companies, and trusts disposing of UK property or land may be subject to UK Capital Gains Tax (CGT) or Corporation Tax (CT) on any gains made.
Understanding these tax rules is essential to ensure you are compliant and able manage any potential liabilities effectively.
Changes to UK Capital Gains Tax Rules for Non-Residents
6 April 2015 – Introduction of CGT for Non-Residents
Since 6 April 2015, non-resident individuals, companies, and trusts have been required to pay UK CGT on gains from the sale of UK residential property. To ease the transition, the UK government allowed property owners to rebase the cost of their property to its market value as of that date. This ensured that only gains made after 6 April 2015, would be taxable.
6 April 2019 – Expansion to Commercial Property and ‘Indirect’ Disposals
On 6 April 2019, the scope of CGT was extended to include all UK land and property, including commercial properties. Additionally, tax liabilities were introduced for ‘indirect’ disposals (discussed further below).
Non-residents who owned property or land before this date could rebase the value to its market price as of 6 April 2019, ensuring only gains made thereafter were taxable. In some cases, rebasing can be disapplied, particularly if it results in an overall capital loss.
Direct vs. Indirect Disposals
A direct disposal occurs when a non-resident sells UK property or land they own outright.
In contrast, an indirect disposal applies when a non-resident sells an interest in an asset, such as a company, that derives at least 75% of its gross asset value from UK property. This rule aims to prevent tax avoidance through the use of corporate structures such as UK Property Rich Companies.
For an indirect disposal to be taxable, two key conditions must be met:
– the shares (or interest) being sold must be in a company/asset which is ‘property-rich’, meaning at least 75% of its total assets (by gross value) consist of UK property. No deductions for liabilities or debts are permitted when calculating the 75% test.
– The seller (which can include any connected parties) must have held at least a 25% interest in the company/asset at the time of disposal or at any point within the previous two years.
If these conditions are met, any gain made on the disposal will be taxable in the UK.
What about Groups?
If a company owns UK property indirectly through a subsidiary, it can still be classified as property-rich. This means that selling shares in the parent company (even if it does not own the property directly) may still trigger a UK tax charge.
For example:
- A non-resident owns shares in a holding company.
- The holding company owns a subsidiary that holds UK property.
- If the subsidiary’s UK property represents more than 75% of the group’s total gross asset value, the entire group is considered property-rich.
- If the non-resident sells their shares in the holding company, they may be liable for UK tax on the gain.
Exemptions from these rules
Certain exemptions apply to these tax rules. For example, a disposal may not be taxable if the UK property is actively used for a qualifying UK trade, such as a hotel or care home, and has been operated for at least one year with an intention to continue.
Additionally, if a linked disposal occurs at the same time, it may reduce the percentage of the property interest below the 75% threshold.
Reporting and Payment Deadlines
Non-resident individuals and trusts must file a Non-Resident CGT Return within 60 days of completion and also report the disposal in their Self-Assessment tax return. N
on-resident companies must register within three months of the disposal, submit a UK Corporation Tax return within 12 months, and pay the tax within nine months and one day after the end of their accounting period.
Final Thoughts
Understanding the UK’s tax rules on property disposals is crucial for non-residents to avoid unexpected liabilities. Since the tax implications can be complex, seeking professional advice is recommended to ensure compliance and optimise tax efficiency.
If you have any questions concerning the above or want to discuss your position, please do not hesitate to get in touch today.
Leave a Reply