Individuals who are not resident in the UK are subject to tax on UK source capital gains arising in the following situations:
- Disposals of UK land and property
- Disposals in entities (e.g. companies) in which at least 75% of their value is from UK land and property.
- Disposals of UK assets used in a trade which the non-resident individual carries out in the UK
Non-resident individuals are not subject to tax on the sale of shares in UK companies (though note the middle bullet point above). Nor are they usually subject to UK on other types of sales of UK or non-UK assets. The exception to this is where the individual is temporarily non-resident. If they are temporarily non-resident then the individual may be subject to capital gains tax in a similar way to that of a UK resident (see below).
Capital Gains Tax on UK Residential Property
Non-resident individuals are liable to Non-Resident Capital Gains Tax (‘NRCGT’) when selling UK land and property at a gain. Previously such gains were outside the scope of UK taxation. This changed from 6 April 2015, when non-residents became subject to capital gains tax on UK residential property disposals.
The rates of tax on residential property gains are:
- 18% (basic rate taxpayer); or 28% (higher rate taxpayer)
Individuals who owned residential property prior to 6 April 2015 will not be liable to tax on the portion of the gain that accrued before 6 April 2015. Use one of the following methods to calculate this:
- Establishing the market value of the property at 6 April 2015 and using that as the cost basis in the property. This is the default position.
- Alternatively, use the original cost basis to calculate the gain. Only the gain from 6 April 2015 is subject to tax, so apply apportioning. An election is required for this method.
The full loss can be used without restriction if the property was sold for less than its original cost, though an election will be required.
Sale of property that used to be individual’s home before leaving the UK
Private Residence Relief will often relieve some, or all, of the taxable gain. See here.
Capital Gains Tax on UK non-residential Property
From 6 April 2019 Non-Resident Capital Gains Tax (‘NRCGT’) was expanded so as to apply to any disposal of UK property or land, including commercial property, .
The rates of tax on non-residential property gains are:
- 10% (basic rate taxpayer); or 20% (higher rate taxpayer)
Individuals who owned non-residential property prior to 6 April 2019 will not be liable to tax on the portion of the gain that accrued before 6 April 2019.
In such cases, the market value of the property at 6 April 2019 will be the cost basis, by default. However, it is possible to make an election to use to use the original cost basis. The individual would likely wish to do this if their original cost basis was higher than the market value of the property at 6 April 2019.
Non-resident individuals who have made a disposal of any property (whether residential or non-residential) must complete the HMRC reporting form, whether or not there is a gain.
The report is due within 30 days of the disposal. Tax due is payable within 30 days of the disposal.
To make the report and pay the tax visit: https://www.tax.service.gov.uk/shortforms/form/NRCGT_Return
Temporary non-residents and UK capital gains tax
If an asset is sold at a gain by a temporary non-resident then it may be taxable on the individual’s return to the UK, in a similar way to how a UK resident would be taxed. This therefore forms an exception to the rules discussed above, i.e. the rules that specify that non-residents are only subject to tax on certain UK source assets.
A temporary non-resident is someone who:
- Lived in the UK for at least 4 out of 7 of the last tax years prior to their departure from the UK to become non-resident, and
- Was away from the UK for less than 5 years
Under the rules, gains made when disposing of assets during the individual’s period of non-residence, will become liable to capital gains tax in the year of return. However this only applies to assets held by individuals before leaving the UK.
Michael owned shares in a UK company, which he bought many years ago. After living in the UK for many years, he moved to live in Brazil, becoming non-resident from January 2018. One year later, in 2019, he sold the shares for a £30,000 gain. In January 2020 he returned to the UK.
In this situation Michael would become liable to Capital Gains Tax on his return, as he was only temporarily non-resident, and he owned the asset prior to his departure from the UK.
Double Taxation Relief
If an asset is sold by a temporary non-resident, it could be taxable in their host country. (i.e. the country in which the individual is resident). In this situation it may be necessary to examine whether there is a double taxation agreement in place between the UK and the host country, and to then examine whether this may relieve the UK tax due.
For more information see: https://www.gov.uk/government/publications/temporary-non-residents-and-capital-gains-tax-hs278-self-assessment-helpsheet/hs278-temporary-non-residents-and-capital-gains-tax-2018