A Matter of Tax - UK residential properties owned by non-residents

There have been a number of changes which any non UK resident holding UK property needs to be aware of.

With the increase in global mobility many of us spend a period of time working overseas and may even move our families abroad for a few years.

It is common to retain your UK home, often this makes sense as you may ultimately aim to return and want to keep up with the UK property market, but what happens if you decide to sell it while still non-UK resident.

Historically, pre 5 April 2015 it was likely that there would have been no implications for this, since as a non-resident you would not have a UK tax liability and in any event, it would be (or would be deemed to be) your UK main residence for most of the period of ownership, making any gain exempt.

Two important new rules are now in force that all non-residents owning UK residential property should be aware of.

A non resident CGT charge arises if:

  • The owner is non-resident in the UK at the time of the disposal, and
  • The disposal is of UK residential property

The rates of tax are 18/28% (individuals) and 20% (companies), however only the gain arising after 5 April 2015 is chargeable under these rules.

There are a number of different ways of calculating the gain and elections to consider which are outside the scope of this article, but a number of comparative calculations may be required to determine the optimal position.

As one element of the calculations relies on a value of the property at 5 April 2015 it may be a good idea to obtain a 5 April 2015 valuation now whilst it can be made on an almost contemporaneous basis. Note: the professional valuation fees are deductible in the capital gains tax calculation as a cost of sale.

A proportion of any gain arising may be exempt under the Principal Private Resident (PPR) rules, however in addition, a dwelling will only be treated as a ‘residence’ for the purposes of the PPR rules in any tax year in which an individual or the spouse / civil partner is UK resident or spends more than 90–days in the property.

As a result of these rules, and as time moves on from 5 April 2015 there are going to be some very complicated capital gains tax computations required.

Here are some key points to keep under review:

  • Any existing PPR elections should be reviewed to determine if these should be varied due to “non qualifying tax years” for a better outcome
  • A disposal for non resident CGT is the same as for CGT generally. Therefore sales, gifts and deemed disposals such as the loss or destruction of UK residential property interest would all potentially fall within these rules.
  • A grant of an option is treated for the non resident CGT rules as a disposal for these purposes (which differs to the treatment of the grant of an option for resident CGT rules)
  • A return must be submitted within 30 days of the conveyance even if no tax is due. If tax is due, it is due within 30 days. Late filing penalties will be charged if the 30 day deadline is missed.  This is a key point that lawyers dealing with a conveyance of a property need to be aware of.
  • The rules apply if the property has ever been suitable for use as a dwelling since 6 April 2015 even if not suitable as such at the date of disposal.

For more on the issues raised in this article, or for information on other tax matters, please contact mary.tierney@bennettbrooks.co.uk or call us on 0845 330 3200.