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February 16, 2022

Something to Gain - Capital Gains Tax for Non-UK Tax Residents and UK Property

Non-UK tax residents are generally not liable to capital gains tax (CGT) in the UK, on the disposal of assets. However, there are exceptions to this, in particular capital gains on UK based land/property and the rules applying to temporary non residents.

This is especially relevant for taxpayers who leave the UK and become non-UK tax resident, as they may not be aware of their UK tax and compliance obligations.

Non-UK Residents and Capital Gains on UK Property

As noted above, individuals are generally not liable to CGT on capital gains when they are non-UK tax resident. However, where the gain arises on land/property based in the UK, then the gain is subject to UK tax.

The rules also extend to assets that derive at least 75% of their value from UK land (such as shares in a company that owns UK property/land). This could extend to 'property-rich' companies.

Up to 5 April 2020, the gain was reported on a Non Resident Capital Gains Tax return. From 6 April 2020, relevant gains are reported via the Capital Gains Tax on UK property service.

The gain will need to be reported (and tax paid where relevant) within 60 days of completion of conveyance (prior to 27 October 2021, this deadline was 30 days).

Method of Calculation

The CGT calculation requires you to consider the gain on the property:

  • from 6 April 2015 for UK residential property (where it was owned on/before this date); and
  • from 6 April 2019 for UK non-residential property, and indirect gains on UK property, where the assets was owned on/before this date).

In such cases the asset is rebased to the market value of the property at this date, and the gain is calculated on any change in value since this time, with due consideration to any allowable expenditure, reliefs (such as private residence relief), and exemptions. This is often referred to as the default method.

For disposals of UK residential property, it is also possible to elect for:

- the capital gain to be calculated on a straight line time apportionment method with only the post 05 April 2015 portion of the gain being chargeable to CGT, or

- for the gain to be calculated as normal over the whole period of ownership,

where either method results in a more favourable tax result.

For disposals of non-UK residential property, the methods or calculation are the rebasing method (from April 2019), or by calculating the gain over the entire period of ownership.

It is also necessary to estimate your other UK income/gains in the tax year, to apply the relevant rates of CGT on the gain and ensure any available annual exempt amount is applied correctly.

Relevant gains are also reported on the self assessment tax return for the tax year of disposal, with a credit for any tax paid already (within the 60-day deadline), and so any tax overpaid/underpaid as a result of estimated figures, should be settled on this return.

Capital Gains Tax for Temporary Non-Residents 

Except for disposals of UK land/property (and assets that derive at least 75% of their value from UK land), a non-UK tax resident should not be subject to UK CGT on disposals of assets.

However, without anti-avoidance rules, it would be possible for an individual to become non-UK tax resident, dispose of an asset, and the gain would not be charged to UK CGT. They could then spend a short period abroad, before returning to the UK, and in effect will have sheltered potentially significant capital gains from UK tax.

There are therefore special rules for temporary non UK tax residents, which apply where:

  • the individual becomes non-resident;
  • the individual was UK resident for at least 4 of the 7 tax years immediately preceding the year of departure; and
  • the period of non-residence is 5 years or less.

If an individual is temporarily non-resident, but then returns to the UK and becomes UK resident again, any capital gains made during this intervening period will all be taxed in the year of return.

If you require advice on if and how you are subject to UK tax on the disposal of assets (including UK land/property) whilst you are non-UK tax resident, please contact a member of the team.

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Contact us today to discuss your tax requirements.
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