Non-Resident landlords and property investors disposing of land and property situated in the UK are generally required to file the Non-Resident Capital Gain Tax (NRCGT) return and pay the NRCGT within 60 days of the date of the disposal of the property.
UK Property Accountants has a team of non-resident capital gain tax (NRCGT) experts to comply with the NRCGT requirements. On this page, we will explain the main provisions surrounding the NRCGT.
However, for a comprehensive guide you can refer to our Non-Resident Capital Gains Tax (NRCGT) on UK Property Disposals.
Historical Background
Historically, the non-residents were generally not subject to the capital gains tax in the UK on the sale of land and properties situated in the UK. The government started to change this provision by bringing UK residential properties within the scope of CGT from 6 April 2015.
The initial 2015 laws were only targeted to residential properties. However, the government broadened the scope of NRCGT from 6 April 2019 to bring ALL the land and property situated in the UK. This means that the Capital Gain Tax (CGT) applies to both the direct and indirect disposal of commercial as well as residential properties from 6 April 2019.
Who falls under the scope of NRCGT?
All non-resident persons fall within the scope of NRCGT if they dispose of UK land and property directly or indirectly. The following fall under the scope of NRCGT:
- Non-resident individuals.
- Non-resident companies.
- Non-resident partnerships.
- Non-resident personal representatives and trustees.
- Non-resident collective investment schemes.
What kinds of disposals and assets fall within the scope of the NRCGT?
Both direct and indirect disposal of any interest in UK land falls under the scope of NRCGT if the taxpayer is non-resident in the tax year of the disposal. Following are the examples of interest in UK land that falls within the scope of NRCGT:
- Residential freehold properties.
- Residential leasehold properties.
- Commercial freehold properties.
- Commercial leasehold properties.
- Any estate, interest, right or power over land and property in the UK.
- Any buildings, structures, or land under the sea within the jurisdiction of the UK.
What does an indirect disposal mean?
If a person sells the land and property (e.g., house), it is a direct disposal. However, instead of selling the house, if the person sells the shares in a company that owns the house, it is an indirect disposal of the UK land.
This indirect disposal also falls within the scope of the NRCGT.
For indirect disposal, the legislation sets our specific tests as below:
- 75% Value Test
If an asset (e.g., shares in a company) derives at least 75% of its value from the UK land, the 75% test is met. For example, a BVI company’s value is derived 85% from UK land and properties. If the non-resident shareholder of this BVI company sells the company’s shares, he is deemed to have disposed of the underlying UK properties.
- 25 % Ownership Test
The 25% is not simply the shares in the non-resident entity. It can take any form, such as voting rights, the entitlement of the entity’s assets, entitlement to the distribution, etc.
Both tests must be met for disposal to fall within the scope of NRCGT.
How is the NRCGT calculated?
The calculation rules for NRCGT can become complex and confusing since the residential properties came under the scope of NRCGT in 2015 and the remaining UK properties came under the scope of NRCGT in 2019.
Without going into complicated cases, we tried to simplify it on this page by including only two types of disposals:
- Disposal of UK residential properties held before 6 April 2015.
- Disposal of UK non-residential properties.
Calculation rules for the disposal of pre-6 April 2015 residential properties
If the non-resident person owns a residential property as of 5 April 2015 and it remains residential until 5 April 2019, the old 2015 NRCGT rules applies. Under this rule, the taxpayer can choose one of the following three methods:
- Default Rebasing Method
Under this default method, the non-resident taxpayer obtains a valuation of the residential property as on 5 April 2015. Only the difference between the price of disposal and 5 April 2015 value is taxable under NRCGT.For example, a non-resident taxpayer bought a three-bedroom house in London in April 2001 at £350,000. The market value of the house on 5 April 2015 was £650,000. The house was sold in Apr-21 for £800,000. Therefore, the taxable gain for NRCGT will be £150,000 (i.e., £800,000 selling price less £650,000 Apr-15 market value) under the default method.
- Time-apportionment method
Under this method, the gain is apportioned based on time under a straight-line basis. In the above example, the total gain is £450,000 (The selling price of £800,000 less initial cost of £350,000), ignoring any other costs. The total period of ownership is 20 years, and only the six years since 5-Apr-15 is taxable. So, the taxable gain will be £450,000 divided by 20 multiplied by 6, arriving at the figure of taxable gain of £135,000.The good thing about this method is that no valuation as on 5 April 2015 is needed.
- Retrospective computation method
This method is quite simple and ignores any rebasing or time-apportionment for 5 April 2015. The entire gain is brought into the NRCGT. In the example above, the taxable gain under this method will be £450,000. This method usually will be beneficial if the disposal is loss-making.
Calculation Rules for disposal of assets not chargeable before 6 April 2019
If properties were not under the scope of NRCGT before 6 April 2019, the NRCGT 2019 rules apply. Under this rule, the taxpayer can choose between the following two methods:
- Default Rebasing Method
Under this default method, the non-resident taxpayer obtains a valuation of the residential property as at 5 April 2019. Only the difference between the price of disposal and 5 April 2015 value is taxable under NRCGT.
- Retrospective computation method
This method is quite simple and ignores any rebasing or time-apportionment for 5 April 2019. The entire gain is brought into the NRCGT. In the above example, the taxable gain under this method will be £450,000. This method usually will be beneficial if the disposal is loss-making.
The 60-day Reporting Requirement
Non-resident taxpayers within the scope of NRCGT MUST report the disposal of UK land and property and pay the CGT due within 60 days of the date of completion of the transaction. This is similar provision for residents as explained in our article CGT Return (60 days).
The NRCGT return must be made even if the CGT is not due and there is a loss.
What types of transactions fall within the scope of a 60-day CGT return?
Any disposal of UK residential properties falls within the scope of the 60-day rule. The disposal can take the following forms:
- Sale
- Gift
- Grant of lease out of residential properties
- Transfer via deed or declaration of Trust
- Transfer via any other means
Is Private Residence Relief (PRR) available for NRCGT?
Private Residence Relief can potentially be available for gains taxable under NRCGT if the relevant conditions are met. PRR itself is a broader topic, and it is not feasible to discuss it further here. So, we will only discuss the additional relevant rules under the NRCGT here. The government introduced non-qualifying tax years rules in a situation where the property is situated in a country where the individual is a non-resident. This is valid for UK properties owned by non-residents.
Under this rule, the individual must spend at least 90 days in the house in question during the tax year. If this condition is met, the whole of the tax year will qualify for private residence relief.
Also, the normal two-year deadline for making the main residence nomination does not apply for the purposes of NRCGT. The non-resident taxpayer can make an irrevocable main residence notification on the NRCGT return, and this notification applies retrospectively to any period of ownership.
Temporary Non-Residence Rules
Without temporary non-residence rules, UK resident taxpayer becomes non-resident and sells the UK land and properties and then comes back to the UK, escaping a substantial amount of CGT.
Under the temporary non-residence rule, any gains or losses realised during the period of temporary non-residence will become taxable in the tax year of the return.
The temporary non-residence rule applies if the following conditions are met:
- The individual was a UK resident for at least four out of the last seven years prior to the year of departure
- Then, he/she becomes non-resident; and
- The period of non-residence is five years or less.
What information do I need for the NRCGT return?
The following information is required before you complete the NRCGT return:
- property address and postcode.
- The date you got the property.
- The date you exchanged contracts when you were selling or disposing of the property.
- The date you stopped being the property’s owner (completion date).
- value of the property when you got it.
- value of the property when you sold or disposed it.
- costs of buying, selling, or making improvements to the property.
- details of any tax reliefs, allowances, or exemptions that you are entitled to claim.
- property type, if you are a non-resident.
- the estimated taxable income in the relevant tax year to determine the tax bracket.
- the details of any other disposals already made in the tax year.
- Valuation as at 5 April 2015 or 5 April 2019 as relevant.
- Information regarding your tax residency.
- Any other information as relevant in your case.
