From 6 April 2015, there will be a new UK Capital Gains Tax (“CGT”) charge against non-residents’ disposals of UK residential property.

The new CGT charge will apply to gains on UK residential property sold by closely held non-resident companies.

Residential property for these purposes is property that is “used or suitable for use as a dwelling” i.e. a place that currently is, or has the potential to be, used as a residence. Where the property is or has been mixed residential and non-residential, gains and losses are apportioned and only those attributed to residential use are subject to the non-resident CGT charge.

The definition of “closely-held company” for the purposes of the new non-resident CGT charge is a company which is under the control of 5 or fewer participators, or that five or fewer participators together hold or, in appropriate circumstances, are entitled to acquire, rights to the greater part of the company’s assets on a winding up. The “closely held company” test is intended to limit the scope to non-resident companies that are the private investment vehicles of individuals, families or small groups of individuals or families. The new CGT rules will therefore not apply to disposals of UK property made by non-resident diversely-held or listed companies.

The non-resident CGT charge is likely to have the greatest impact on small, non-resident, UK property rental and investment businesses.

The rate for companies will be 20%, mirroring the rate paid by UK resident companies. If a non-resident is liable for tax both in the UK and in their country of residence, relief may be available under a double tax agreement between the UK and that country. A double tax agreement typically provides that gains derived by a resident of one state from the disposal of immovable property located in another state may be taxed in the state in which the property is located. There is also an optional pooling mechanism for group companies allowing them to aggregate gains and losses from disposals of UK residential property across the group.

The government’s proposals for reporting and payment of non-resident CGT are that there will be a deadline of 30 days from the date of the conveyance in which to notify HMRC of the disposal using a non-resident CGT return, regardless of whether or not the disposal gives rise to a relevant gain. Where the disposal gives rise to a relevant gain, a non-resident company that is not already registered with HMRC for self-assessment must pay the charge at the same time as submitting the return. A non-resident company that is registered for self-assessment with HMRC can choose either to pay the return at the same time as submitting the return or to make the payment within the usual self-assessment timescales.

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