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Tax changes afoot for non UK residents with UK property

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Significant changes are being introduced from 6 April 2019 for non UK resident individuals and companies who own property within the UK.

HMRC widen the exposure to non-resident capital gains tax from 6 April 2019

From 6 April 2019 the extent to which capital gains tax is levied on non-UK tax residents with UK property extends to both UK commercial property and land. Prior to this change non-UK tax residents were usually only subject to capital gains tax should they sell UK residential property.

They will also need to submit a non-resident capital gains tax return within 30 days of the transaction, regardless of whether they already complete UK self-assessment tax returns or if there was no capital gains tax due on the disposal in question.

The taxable element for residential property is the increase in value from the 6 April 2015 to the date of sale and the new rules will apply to sales of commercial property or land so that the increase in value from 6 April 2019 will be subject to UK tax.

There are a variety of methods which can be used to calculate the gain or loss and advice should be sought to ensure that you choose the most appropriate one.

Non-UK Resident with shares in a property rich company

Following the 6 April 2019, UK tax may also be payable where there is a disposal of an interest in a company where a non-UK resident holds 25% or more of the share capital in a property rich company.

Broadly speaking, a property rich company includes any company that derives 75% or more of its gross assets from UK commercial or residential property.

The new rules are designed to bring more non-resident individuals in to the scope of UK tax. The issue here is that for those people that hold investments in UK property or companies that own UK property they may not actually know that they need to file UK tax returns or non-resident capital gains tax returns.

Practical Issues of Non-Compliance

The penalties in place are not limited to the amount of tax due, therefore even if no tax is due and the calculation is relatively straightforward, penalties can still be levied if returns are not filed, even if an individual is unaware of the obligations they are under in the UK.

Typically, individuals may rely on legal advisers to advise on compliance requirements, however if they are not specifically instructed or are not aware of the changes they may not advise you.

Changes for UK and non-UK residents from 6 April 2020

From 6 April 2020, two changes are being made with regard to disposals on your main home which could result in tax becoming payable:-

  • lettings relief will be abolished and
  • the automatic last 18 months of relief will be reduced to 9 months,

Many individuals who have moved out of the UK, retain a UK home and may previously have relied on these two rules to reduce their tax.  It is recommended that anyone who may be affected by these changes seek advice to understand whether there will be increased tax costs of retaining these homes.

However, for others that are considering selling their UK property in the short to medium term, action should be taken now to assess the impact of a pre-6 April 2020 sale.