For individuals who are non-residents of UK and are investing in the UK, it is important to understand the tax system in the UK, particularly capital gains tax. While many assume they are exempt from UK tax simply because they live overseas, this is not always the case.
Since recent changes in UK tax law, non-residents are indeed liable for non resident capital gains tax made from the sale of certain UK assets, especially property.
Capital Gains Tax for Non-Residents
CGT is a tax on the profit that is made on the selling of an asset that has increase in value. You will be taxed on the gain and not on the total amount received.
Prior to April 2015, non-residents were not generally liable for CGT on UK assets, However the UK government has since widened the scope of CGT to include non-residents in several keyways:
- From April 6, 2015:
Non-residents became liable for CGT on gains from UK residential property. - From April 6, 2019:
This was extended to include all UK property and land, both residential and commercial. - From April 6, 2020:
CGT rules were further extended to cover indirect disposals, such as selling shares in a company that derives 75% or more of its value from UK land.
Who must file?
A non-resident individual, company or trust must file a CGT return and potentially pay CGT if they:
- Sell, gift or otherwise dispose of UK property or land.
- Make a gain on the sale
- Are not covered by a CGT exemption or treaty relief.
For instance, even if there is no tax due, as a result of no gain or a loss transaction, the disposal must still be reported to HMRC.
Deadlines and process
Non-residents who are subject to capital gains tax must report the disposal within 60 days of the sale completion and pay any CGT due within same 60 days.
In case of a failure to file on time may result in penalties and interest, even if no tax is owed. Returns must be filed through the HMRC online system, and the process includes calculation the gain based on either the original purchase price or the market value as of April 5, 2019.
Allowances and Rates
Non-residential will still be able to use the annual CGT allowance unless they are classed as temporarily non-resident, in which case gains may be taxed when they return to the UK.
The applicable CGT rates for non-residents are generally:
- 18% or 28% for residential property
- 10% or 20% for other assets
Conclusion
Non-residents are required to file and potentially pay for CGT in the UK when disposing of UK property or certain UK-based assets. The scope of CGT has widened significantly in recent years, and many overseas investors are now within its scope.
To avoid penalties, non-residents should ensure that they report disposals within 60 days, even if no tax is owed.
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