In recent years, the UK's tax landscape has undergone significant changes, especially concerning non-resident individuals and entities holding UK property. A key development is the Non-Resident Capital Gains Tax (NRCGT), introduced to tax gains on UK property disposals by non-residents. Initially applying to residential property from April 2015, it was later expanded in 2019 to cover non-residential property and land.
For non-residents, whether investing in residential flats in London or commercial property in Manchester, it’s essential to understand how NRCGT affects your tax obligations. In this blog, we’ll cover the scope of NRCGT, explore alternative methods for computing gains on residential properties, and provide worked examples to clarify the rules.
NRCGT: An Overview
The UK’s extension of Capital Gains Tax (CGT) to non-residents in 2015 was a major shift in tax policy, bringing non-resident investors into the tax net for the first time. Initially targeting residential properties, the regime was further expanded in April 2019 to include commercial properties and land, catching a broader range of property investments.
Who is Affected by NRCGT?
NRCGT applies to non-UK residents disposing of:
Residential property: Any building used or suitable for use as a dwelling.
Non-residential property: Commercial property such as offices, factories, and land.
Indirect interests in UK property: If more than 75% of a company’s assets derive from UK land and the non-resident holds a 25% or greater interest in the company, the disposal of shares in that company is subject to NRCGT.
The tax applies to individuals, companies, and trusts, but there are different rules for each type of entity. For companies, NRCGT is calculated under the corporation tax regime.
What is a “Disposal” for NRCGT Purposes?
A disposal includes selling, gifting, or transferring ownership of UK property or land. Even if there’s no money exchanged (e.g., a gift to a family member), NRCGT may still apply, and a tax charge could arise.
Residential vs Non-Residential Properties
A key distinction in NRCGT lies between residential and non-residential properties, as different tax rates and rules apply.
Residential Property
For non-residents, residential property was the first asset type brought under NRCGT in April 2015. Examples include houses, flats, and any building used or suitable for use as a dwelling.
Main Exemptions: There are limited exemptions available. The most notable is Private Residence Relief (PRR), which applies if the property was your main or only home. However, non-residents are required to have occupied the property for at least 90 days in the tax year to qualify for PRR.
Tax Rates: NRCGT is taxed at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers. Companies disposing of residential property are taxed at the corporation tax rate of 25% (since April 2023).
Non-Residential Property and Land
From April 2019, NRCGT extended to cover non-residential property and land, meaning commercial property and undeveloped land are now subject to the tax.
Examples: Non-residential property includes commercial premises such as office buildings, shops, factories, and agricultural land.
Tax Rates: For individuals, non-residential property gains are taxed at 10% (basic rate) and 20% (higher rate). Companies pay NRCGT at the 25% corporation tax rate.
Indirect Property Holdings
If a non-resident owns shares in a company where 75% or more of its assets are derived from UK property, they could be subject to NRCGT when selling those shares, provided they hold at least a 25% interest in the company. These rules capture indirect ownership structures, such as property investment vehicles.
Alternative Methods for Computing Gains on Residential Property
When it comes to calculating NRCGT for residential property, there are three different methods that non-residents can use to compute the taxable gain. These methods provide some flexibility, allowing taxpayers to choose the one most advantageous to them.
1. Default Method: Rebasing to 6 April 2015
The default method for non-residents selling residential property is to rebase the property’s value to 6 April 2015. This means that only the portion of the gain accruing after that date is taxable.
Example: If a property was purchased in 2010 for £400,000 and its market value on 6 April 2015 was £600,000, only the gain from 2015 onwards will be taxed. If the property sells for £800,000 in 2024, the taxable gain would be £200,000 (£800,000 - £600,000).
2. Time Apportionment Method
This method calculates the gain by time apportioning it between the period before and after 6 April 2015. Essentially, the total gain is divided based on how long the property was owned before and after that date, with only the post-2015 period being taxable.
Example: A property is purchased in 2010 for £400,000 and sold in 2024 for £800,000. The total gain is £400,000. If the property was held for 14 years, and 9 of those years were before 6 April 2015, the taxable gain would be (5/14) of £400,000 = £142,857.
3. Straight-Line Method (Original Cost)
Under this method, non-residents can choose to calculate the gain based on the original acquisition cost. This means the full gain from the date of purchase is considered, without any rebasing or time apportionment.
Example: If a property was purchased in 2010 for £400,000 and sold in 2024 for £800,000, the full gain of £400,000 would be taxable under this method.
Choosing the Right Method
Non-residents should carefully consider which of these methods results in the lowest tax liability. In general, the rebasing method tends to be the most advantageous when the property has appreciated significantly since 2015, while the original cost method may be preferable if the property’s value has stagnated or even decreased after 2015.
Key Considerations for Non-Residents
1. Rebasing of Property Values
When calculating NRCGT for residential properties, rebasing the property’s value to 6 April 2015 (or 6 April 2019 for non-residential properties) often reduces the taxable gain, as only gains accruing after this date are subject to the tax.
2. Reporting and Payment Deadlines
Non-residents must report any property disposal to HMRC within 60 days of completion, and payment of any NRCGT due must also be made within this period. Failure to meet this deadline can result in penalties and interest charges.
3. Reliefs and Allowances
Non-residents are entitled to the annual exempt amount, which is currently £6,000 for individuals (2024). This allowance can be deducted from the gain before calculating the tax liability. Additionally, there are reliefs such as Private Residence Relief (PRR) and business asset disposal relief, depending on the nature of the property.
Worked Examples
Let’s look at two worked examples to illustrate how NRCGT is applied in practice.
Example 1: Sale of a Residential Property by a Non-Resident Individual
Scenario: A non-resident individual, Tom, purchased a flat in London in 2012 for £500,000. He sells it in 2024 for £1,200,000.
Rebasing Date: The property’s value on 6 April 2015 was £700,000.
Taxable Gain: Using the rebasing method, the taxable gain is £500,000 (£1,200,000 - £700,000).
Exempt Amount: Tom can deduct his £6,000 annual exempt amount, reducing the taxable gain to £494,000.
Tax Rate: As a higher-rate taxpayer, Tom is subject to NRCGT at 28%.
Tax Liability: £494,000 x 28% = £138,320.
Example 2: Sale of Non-Residential Property by a Non-Resident Company
Scenario: A non-resident company, ABC Ltd, purchased a warehouse in 2016 for £1,500,000. The company sells it in 2024 for £2,500,000.
Rebasing Date: The warehouse’s value on 6 April 2019 was £2,000,000.
Taxable Gain: The taxable gain is £500,000 (£2,500,000 - £2,000,000).
Tax Rate: ABC Ltd is subject to NRCGT at the corporation tax rate of 25%.
Tax Liability: £500,000 x 25% = £125,000.
Key Statutory References
TCGA 1992 (Taxation of Chargeable Gains Act 1992): Governs NRCGT, including amendments in 2015 and 2019 to cover non-residents.
Finance Act 2015: Introduced NRCGT for residential property.
Finance Act 2019: Extended NRCGT to non-residential property and indirect disposals.
Corporation Tax Act 2010: Relevant for companies, where NRCGT is integrated with corporation tax.
Common Mistakes to Avoid
Missing Reporting Deadlines: With only 60 days to report and pay, it’s crucial for non-residents to stay on top of deadlines.
Misclassifying Property: Ensure that property is correctly classified as residential or non-residential to avoid tax miscalculations.
Overlooking Indirect Disposals: Investors in property-rich companies must be aware of the rules concerning indirect disposals.
Call to Action: How LEXeFISCAL LLP Can Help
Navigating NRCGT for residential or non-residential property can be complex. At LEXeFISCAL LLP, we specialise in helping non-residents understand their tax obligations and optimise their position. Our team of experts stays on top of the latest UK tax laws to provide you with tailored advice that ensures compliance and maximises tax efficiency.
If you're planning to sell UK property or simply want a clearer understanding of NRCGT, contact LEXeFISCAL LLP today. Let us guide you through the complexities and help you achieve the best outcome.
Disclaimer: This blog post provides general information and does not constitute legal or tax advice. Always seek professional advice specific to your circumstances.
Confidentiality and Restriction on Disclosure Disclaimer: The information contained in this blog post is confidential. It may not be disclosed, distributed, or used without the express consent of LEXeFISCAL LLP.
Dr Clifford John Frank
LLM (Tax), HDIpICA, PhD, CPA
Senior Partner
Mr Angelo Chirulli
Master’s Degree, ACA, ADIT, BFP
Tax Partner
Email: angelo@lexefiscal.com
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