Capital Gains Tax Savings for non-UK Residents

Capital Gains Tax (CGT) is the tax paid on the profit when you dispose of a ‘chargeable asset’, for example a residential property. Until recently, UK CGT for the disposal of UK assets was largely payable only by UK residents. However recent changes in legislation mean that non-UK residents now find themselves liable for CGT on the disposal of UK based assets such as residential property.

From 6 April 2015 non-UK residents fell within the CGT net on the disposal of UK property. This means non-UK residents must inform and pay tax to HMRC within 30 days if they have given/sold a UK residential property. This applies even when there is no tax payable or when you’ve made a loss. If the property was jointly owned then each party has an obligation to tell HMRC about their own personal gain or loss.

Non-UK residents have the choice of two methods for calculation of CGT: rebasing or time appointment.

Rebasing means the property’s value at 5 April 2015 is used as the new ‘cost base’ for the calculation of CGT. Depending on the change in value over the last two years, this can be an effective way to save on CGT where the property may have substantially increased in value in the early stages of the investment, before the value has plateaued in recent years. Refer to table 1 below for an example on how this would be calculated.

Table 1: Rebasing for a property purchased 5 January 2011, sold 6 June 2016

Purchase price (5 January 2011) £650,000
Market value (5 April 2015) £750,000
Sale price (6 June 2016) £800,000
Chargeable Gain £50,000

Time appointment involves calculating the proportion of time that the property was held post 5 April 2015 relative to the overall period of ownership. For example if the property was owned for 10 years in total and sold 12 months after 5 April 2015 then CGT would be chargeable on one-tenth of the overall gain. Refer to table 2 below for a more detailed example of how this would be calculated.

Table 2: Time Appointment for a property purchased 5 January 2011, sold 6 June 2016

Total ownership period is 65 months, time from 5th April 2015 to disposal is 14 months. Therefore ‘time appointment’ is 14/65.

Purchase price (5 January 2011) £650,000
Sale price (6 June 2016) £800,000
Total Gain £150,000
Time Appointment 14/65
Chargeable Gain (£150,000 x 14/65) £32,307.69

In the examples above, the ‘time appointment’ method proves the most appropriate as this reduces the chargeable gain considerably. In a scenario where the house price had increased significantly between purchase and 5 April 2015 before plateauing for the past two years, the ‘rebasing’ method would likely prove most appropriate.

The correct advice surrounding the disposal of a residential property for a non-UK resident could save you thousands in unnecessary tax. If you are interested in obtaining advice surrounding CGT and the disposal of assets, the team at Stone King Solicitors would be pleased to help.

For more information please contact Rod Smith, Amish Patel or Sean Knight at Stone King Solicitors on 0207 796 1007