An article relevant to the tax year 2020/21 to consider CGT for UK non-residents
You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.
Capital Gains Tax
You will need to pay Capital Gains Tax (CGT) on most assets that you sell. There are different rates of CGT that that is applied to asset disposals:
– 10% CGT rate for basic rate taxpayers
– 18% CGT rate for basic rate taxpayers that sell residential buy to let investments
– 20% CGT rate for high rate taxpayers
– 28% CGT rate for high rate taxpayers that sell residential buy to let investments
It is not all doom and gloom. You are entitled to a £12,300 annual CGT allowance. This means you can make a gain of £12,300 on an asset and still not pay any tax. Please note that you only benefit from the annual CGT allowance of you are:
– A UK resident for tax purposes
– A member of the EEC
– In a country that allows a personal allowance as part of the UK tax treaty
Reporting CGT for asset disposals for non-residents
– you’ve no tax to pay
– you’ve made a loss
– you’re registered for Self Assessment
UK capital gains tax is charged on disposals of “UK property” directly or indirectly owned by non-UK resident individuals. “Non-resident” includes the overseas part of a split-year. Such disposal is referred to as a Non-Resident CGT (“NRCGT”) disposal (TCGA 1992, s.14B).
Direct ownership means they own the asset (or a portion of it) in their own name. Indirect ownership means that they own shares in a company that owns such assets.
UK residential property means a dwelling either used as a residence or suitable for use as such and is outside the charge were sold before 5th April 2015. Commercial property capital gains are outside the charge were made prior to 6th April 2019.
If there was a change of use of the property (or if the property was in mixed residential and non-residential use), a “fair and reasonable apportionment” of the gain can be made to reflect any time the property was not residential (TCGA 1992, Sch.4ZZB para 6) up to 6th April 2019.
– On UK residential property, the part of the gain arising after 5th April 2015 is chargeable to CGT (as this was the date that the legislation took effect for residential property). Similarly, only the post-April 2015 element of a capital loss is allowable.
– On UK commercial property, the part of the gain arising after 5th April 2019 is chargeable to CGT (as this was the date that the legislation took effect for commercial property). Similarly, only the post-April 2019 element of a capital loss is allowable.
How to calculate Capital Gains Tax for non-residents
There are three methods for calculating the chargeable gain or allowable loss.
– Method 1. The default method: This requires the property to be valued (“rebased”) at 5th April 2015 for residential and 6th April 2019 for commercial. The chargeable gain or allowable loss is the difference between the sale proceeds and the value at 5th April 2015/19. April 2015/19 property values will be subject to agreement with HMRC.
– Method 2. The straight-line time apportionment method: This calculates the gain by deducting the original cost from the sale proceeds. The resulting gain or loss is then time apportioned with only the post 5th April 2015 proportion being charged or allowed for residential and post 6th April 2019 proportion being charged or allowed for commercial property.
– Method 3. The retrospective method: This calculates the gain or loss by deducting the original cost from the sale proceeds. In this case, the whole of the gain is chargeable.
How accurately do the CGT calculations need to be?
The “default method” will apply unless the taxpayer elects to use one of the two alternative methods. The election for the “retrospective method” is only likely to be beneficial where a loss arises since the whole of the loss will then be allowable. Elections are made on a disposal-by-disposal basis.
If the gain on the NRCGT disposal is taxed in your actual country of residence, double tax relief should be available for the UK CGT in the “home” country.
This CGT assessment will be based on the information available to the taxpayer at the date of the NRCGT return. At this time the taxpayer might not be certain of his exact UK taxable income for the tax year and how much (if any) of the basic rate band is available. He may not know the CGT rate that will apply to the NRGT gain.
The CGT assessment may be estimated and subject to amendment later on. HMRC has confirmed that provided that the CGT estimate is fair and reasonable, no penalties will arise in the event the assessment turns out to have been inaccurate.
Download your buy to let tax guide here, written by our property accountants
If you want to know more, then please read our “buy to let tax tips for UK landlords” article.
Capital Gains Tax losses for non-residents
An allowable loss on NRCGT disposal can only be set against NRCGT gains in the same or future tax years. If you subsequently become UK-resident and thereafter subject to CGT on all disposals, any unused NRCGT losses can be set against general chargeable gains.
Capital Gains Tax and returning to the UK.
On other assets, to maintain the non-capital gains tax status on sale, you must remain non-UK resident for at least 5 full tax years. If you do not a capital gains tax charge will be levied on you for any assets which you didn’t pay CGT on.
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