Non-Residents’ Capital Gains (NRCGT)

With effect from 6 April 2019, the scope of capital gains tax for non-residents has been extended to include UK commercial property as well as residential property. Prior to this date only residential property had been within the charge to NRCGT, but from 6 April 2019 onwards the sale of any UK land and property by a non-resident will be subject to capital gains tax.

How Capital gains tax is calculated

Where commercial property is already owned prior to 6 April 2019, the chargeable gain will be calculated by reference to the increase in value from the rebasing date of 6 April 2019 (for residential property the rebasing date is 6 April 2015). An election is available to ignore revaluing at 6 April 2019 which will be beneficial if the original cost was higher than the April 2019 value (a similar election is available for residential property).

For companies, any gains will be taxed at the corporation tax rate which is currently 19%. For individuals the rate is 20% (28% for residential property).

Indirect Holdings

The sale of shares in a company owning UK property can also be caught by the NRCGT charge. Gains on the disposal of closely held indirect interest in property-rich companies are also now taxable with effect from 6 April 2019. Broadly speaking, a closely held interest is 25% or more in the relevant entity and a property-rich entity is one in which 75% or more of the gross asset value of the company is UK land. The fact that measure is of the gross asset value means that borrowing costs cannot be offset against the property value.

There is an exemption from the charge for disposals of indirect holdings where what is being sold are shares in an ongoing trading company which has UK land amongst its assets. The exemption will apply where all or most of the land is being used in the course of a qualifying trade.

Reporting requirements

Any tax due needs to be paid and a NRCGT return submitted online to HMRC within 30 days of completion of a sale. Failure to submit a return and pay the tax due will be subject to penalties and interest.

Valuing your property

We recommend that non-resident individuals and companies holding UK commercial property consider valuing their property assets now in order to get a contemporaneous value which can be used to calculate and plan for future tax liabilities on disposals of their property or shares in property rich companies. If you would like to consider valuing your property, we can help put you in touch with local surveyors.

Temporary non-residence

Existing rules which catch gains made by individuals who are temporarily non-resident continue to apply. Where an individual makes a disposal during a period of non-residence and returns to the UK within five tax years of their departure, gains made of UK assets during that period of non-residence will be taxable on their return. Relief will be given for any NRCGT paid during that period.

 

CGT rates have changed since this article was written and more up to date information can be found in our 2024 Spring Budget response.