Since April 2019, the new rules regarding capital gains tax have been implemented in UK. The intention of the implementation of new rules is to remove the advantage of non- UK residents who did not pay tax over the gains from the disposal of all their property in UK.
What was the situation before April 2019?
Until April of 2019 Capital Gains Tax applied only to disposals of UK residential property held by non- UK residents’ individuals. There was no Capital Gains Tax if a non- UK resident sells a company that owns UK residential property. Also, non-UK residents did not pay any Capital Gains Tax when they disposed commercial property in UK (eg. Offices, shops, hotels, farms or factories) whether they own the property itself or their company owns the property.
What are the changes?
The UK government introduced non-resident capital gains tax (NRCGT) which applies to all non-UK residents including individuals, trusts and companies. From 6th of April 2019 non -UK residents will be obliged to pay NRCGT on both commercial and residential properties in UK.
NRCGT will also be applied on the sale of shares in company that owns UK real estate (either residential or commercial) in the following cases:
- If the company is “land rich” at least 75% of its values derives from UK property. The disposal could be of the company which directly owns the UK property, or a holding company of a subsidiary which holds UK property. Where more than one company is sold, complicated rules apply to work out whether, in aggregate 75% of the value of the companies derives from UK company.
- If the non-UK resident and related partners hold or at some point in the previous two years have held at least a 25% interest in the company.
Natural persons will pay NRCGT at 28% on residential property and 20% on commercial property.
UK companies pay corporation tax currently 19% on gains made from the disposal of UK property. Non-UK companies pay NRCGT at 20% on gains from the UK real estate.
Tax returns and payments of tax
The Capital Gains Tax for the particular year must be paid by the 31st January following the end of the tax year. A taxpayer who owns a number of assets can look at his gains and losses for the entire year and only pays tax on the net gains.
In case that a non-UK resident sells UK residential property, then he must submit a NRCGT return within 30 days of the sale and any tax due must be paid at the same time.
UK government will extend these rules to all sales of UK real estate whether direct (i.e. a sale of the property) or indirect (i.e. the sale of a property owning by company):
- From 6th April 2019 for non-UK residents; and
- From 6th April 2020 for UK residents.
It is worth to be noted that the following transactions will be exempted from these new obligations:
- Gifts and sales between spouse;
- Gifts and sales of non-UK shares by a UK resident but non-domiciled individual who claims the remittance basis;
- Sales of an individual’s main residence (which is exempt from capital gains tax).
Non-UK resident property holders must be aware that they have an obligation to submit NRCGT returns within 30 days of sale. Otherwise HMRC may impose penalties on the owner who fails to submit a return in time. If the individual has a “reasonable excuse” for not submitting the return then no penalty will be imposed by HMRC.