Historically, UK capital gains tax (CGT) has been a tax that only applies to UK residents. However, changes have been taking place since 2015 which now mean that non-UK residents can be taxed on the disposal of UK real estate.
Real estate owners need to be aware of their new CGT obligations as HMRC is already charging penalties for unpaid tax and late returns. The Government has just updated its guidance on what non-residents need to do when they dispose of UK property. This is timely as there are now a number of different rules that apply depending on particular circumstances. Non-residents disposing of UK residential property have been required to file a non-resident CGT return within 30 days of completion of sale of the property since 6 April 2015.
Tax is also payable at the end of the 30-day period unless the nonresident owner already files self-assessment tax returns. Failure to file the relevant CGT return within the time limit will lead to a late filing penalty. In addition, interest and penalties can also be charged on the late payment of tax.
From 6 April 2019, these 30-day rules are extended to disposals of commercial property by nonresident individuals and companies. The rules also apply to the disposal of shares in ‘UK property-rich entities’ – ie companies where at least 75 per cent of their value comes from UK land or real estate investment trusts (REITs), and where the vendor has a 25 per cent or more interest in the company. In a further change, non-resident companies will be charged to corporation tax rather than CGT on the profits of real estate disposal. This in itself may seem to be a fairly innocent change, but it brings the foreign company into all the UK corporate tax rules which can, in certain circumstances, make a significant difference in how profit is measured resulting in an increase in the tax charge.
In contrast, there are no changes for UK-resident individuals or companies this year. The sale of a UK property by an individual will continue be disclosed in the taxpayer’s self-assessment tax return. The tax is due by the 31 January following the end of the year of assessment. The sale of your principal private residence which attracts no tax does not have to be reported. UK companies will continue to report sales of property within their corporation tax return and pay their tax on the usual date.
However, it will be all change for UK residents next year. For disposals on or after 6 April 2020, the 30-day rules will also apply to UK residents selling residential property. So returns will need to be made and tax paid within 30 days of completion of the sale of the property. For now, the existing rules will continue to apply to disposals of commercial property but it is almost certain to be on the Government’s agenda to bring this into the 30 days rules.
As the 30-day rule will apply to disposals of residential property by UK residents and all disposals of UK real estate by non-UK residents from 6 April 2020, non-residents will lose the option to defer payment of the tax due until the following 31 January and will need to settle their liability within the 30-day period. This is part of a concerted effort by the Government to ensure CGT is paid at the time the sale proceeds are received. We should expect to see further moves in this direction in a range of other taxes over the next few years.
For further information on CGT or other taxation issues, please contact Stuart McKinnon on 0191 255 7000 or stuart.mckinnon@rsmuk.com or your usual RSM contact.
