Since April 2019, new rules have been incorporated in the UK regarding CGT or Capital Gains Tax. These new rules have been intentionally incorporated and implemented in order to eliminate the advantage that non-UK residents had where they did not have to pay any tax over their gains from disposing of their properties in the UK.
The Situation Prior to April 2019
According to the situation prior to April 2019, CGT applied only to non-UK residents and their disposal of residential properties in the UK. The Capital Gains Tax was inapplicable in case a non-UK resident decides to sell a company or a firm that owns residential property in the UK. In addition to that, non-UK residents were also not liable to pay any CGT in case they disposed of their UK commercial properties such as shops, offices, farms, factories or hotels. This held true irrespective of whether the property was owned by them or their company.
Changes in Capital Gains Tax
The government of the UK has introduced NRCGT or Non-Resident Capital Gains Tax that is applicable to all the non-UK residents. This includes trusts, companies, and individuals. Hence, from April 6th, 2019, the new rule states that all non-UK residents will have to pay NRCGT on both residential and commercial UK properties. Moreover, NRCGT shall also apply to situations where the shares of a company are sold by a non-UK resident who owns real estate (either commercial or residential) in the UK in the following cases:
- In case the company is rich land-wise, and a minimum of 75% of its values come from the UK property. In this situation, the disposal could take the place of the company that owns the UK property directly or a subsidiary’s holding company that holds the property in the UK. In the case where over one company is sold, the rules that apply are complicated as it needs to be worked out if an aggregate of at least 75% of the total value of the companies comes from a company in the UK.
- In case non-UK residents, as well as their related partners, have held a minimum of 25% interest in a company in the last two years.
Tax Rates
Natural residents are expected to pay NRCGT at 20% on commercial properties and 28% on residential properties. Moreover, UK companies must pay corporation tax at 19% on the gains that are made from disposing of a UK property. In the same vein, non-UK companies are required to pay NRCGT at 20% on the gains from their real estate in the UK.
Payments of Tax & Tax Returns
CGT for a particular year needs to be paid in total by January 31st of the end of the following taxation year. Furthermore, a taxpayer owning several assets must assess his/her gains as well as losses for the complete year but only pay tax on the total net gains. If a non-UK resident sells any residential property in the UK, he/she must then submit an NRCGT return (according to the new rules) within 30 days of selling the property. Any tax that is due should also be paid within the same time limit. The government of the UK shall extend these rules further to all UK real estate sales, whether direct or indirect. The rules for non-UK residents came into force on April 6th, 2019, whereas the ones for 2020 will come into force starting April 6th, 2020. Here is good read on Pay Capital Gains Tax in 30 days from 6 April 2020
It is crucial to mention here that the transactions mentioned below shall be exempt from the new obligations:
- The sale of a person’s main residence
- Sales and gifts between spouses
- Sales and gifts of non-UK shares made by a UK resident who is a non-domiciled individual claiming the remittance basis
In addition to that, as mentioned above, non-UK resident property holders must submit their NRCGT returns promptly within 30 days of selling a UK property. If they fail to do so, HMRC might impose fines and penalties on the owners. That said, if a person has a ‘reasonable excuse’ for the submission of a late return, HMRC might not impose a penalty.
How Can DNS Accountants Help You Out?
DNS Accountants is a team of expert accountants who are well-versed with the taxation system of the country. We employ the most experienced team of professionals property tax experts in the industry who have learned the ins and outs of all kinds of taxes that can be imposed on the UK and non-UK residents in a taxation year.
Although the CGT rules are rather straightforward, they keep changing with every passing year. Therefore, if you are not sure of the best foot forward or would like to leave the job to the experts, get in touch with us and we will help you pay your taxes on time to avoid heavy penalties.
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