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The rules for Non-UK Residents selling UK property

By Ensors Team
15th Jun 2015

A major change in legislation for non-UK residents has arrived, and it spells additional work for Estate Agents, Solicitors and Tax Advisors here in the UK as well.

Non-UK residents have long been exempt from UK Capital Gains Tax.  Historically, you only needed to have been outside the UK (or non-resident) for the tax year in which you sold an asset for it to have been exempt from Capital Gains Tax.  However in order to prevent people going abroad for relatively short periods of time (perhaps on a work contract) and realising large gains whilst away from these shores, Gordon Brown (remember him?) first made it a rule that you would need to be classed as non-resident for five complete tax years for the exemption to apply.

But this did nothing to prevent the long-term non-resident from being exempt from UK Capital Gains Tax – those who genuinely lived elsewhere in the world.  Couple this with the valuable housing market in the United Kingdom, where large profits could be made, and the fact that our Capital Gains Tax rules are a little out of sync with a lot of the rest of the world in this area, the government decided to change the rules to tax what it perceived as a hitherto untaxed source of profit.

From April 2015, a non-UK resident selling or gifting a UK situated residential property (or a share of one) is now subject to Capital Gains Tax on the profit on the transaction. As most non-residents are likely to be unaware of the change in rules, it will be the Estate Agents and Solicitors who will be left to alert their clients to take specialist tax advice before the transaction takes place and also to ensure their clients pay any capital gains tax on time. It is however the taxpayer who is responsible for meeting their obligations under these new rules.

Why the pressure?  The new rules state that a disposal of UK property by a non-resident must be reported to HMRC using an online system within 30 days of the date of conveyance, irrespective of whether any gain is due.  This applies, even if the seller (or donor in the case of a gift) is already within the Self-Assessment Tax Return system.  Additionally, a full Capital Gains Tax computation must be prepared and submitted to HMRC with the conveyance report within the 30-day time limit as well as full settlement of any Capital Gains Tax on any gain arising post 5 April 2015.

The Capital Gains Tax computations themselves will provide another element of complexity over and above the pressures brought about by the 30 day time limit.  The new rules allow various methods of preparing capital gains computations, and consideration needs to be given as to whether a formal property valuation as at 6 April 2015 is beneficial.  Non-UK resident individuals should also consider their entitlement to any available reliefs and allowances, for example Private Residence Relief (which could open the way for Let Property relief as well) and whether any pre-sale planning could be undertaken for tax efficiency.

It should also be noted that even a transfer of property (or a gift of a share of the residential property) between non-resident spouses – hitherto an exempt transfer – is technically caught by the 30-day reporting deadline.

Any non-UK resident individual considering selling or giving away UK residential property should take professional tax advice at an early stage to determine their exposure to Capital Gains Tax; whether any planning can be undertaken to reduce any tax exposure, and to ensure that they are ready to meet the new particularly onerous 30 day reporting requirement.

For further information on any of the above points or to discuss your affairs generally, please do not hesitate to contact Robin Beadle.