Capital Gains Tax for Non-Residents and Enveloped Dwellings

Considerations when selling properties

In 2013, the Government introduced a new tax on properties owned by ‘non-natural persons’; in other words, under corporate structures.  The tax, known as the Annual Tax on Enveloped Dwellings, is paid every year regardless of whether any income is derived from the property.

In addition to this, however, there are two additional taxes which may be payable on some properties when they are sold: Non-Resident Capital Gains Tax (NRCTG) and ATED-related Capital Gains Tax.  The combination of these, along with ATED, could mean that property owners are paying two or even three different taxes on their property, potentially with different valuation dates.  Many therefore benefit from expert advice and professional, up-to-date valuations.

What is Non-Resident Capital Gains Tax?

NRCTG is a new tax from 6 April 2015 under which all non-UK resident persons, individuals and companies, will pay a 20% capital gains tax on any profit realised on their property after 6 April 2015.  Companies can elect to pay CGT on another basis, such as over the whole lifespan of the property, and this is irrevocable.

The NRCTG only applies to the extent that the ATED-related CGT, discussed below, does not.

Do I have to pay Non-Resident Capital Gains Tax?

The NRCTG is payable on residential properties in the UK if they are not your main home, or if it is your main home but is very large, has been let out or used for business, or if you have been absent from it for long periods.

You will be liable to pay NRCTG on such properties if you are a non-resident individual, a personal representative of one who has died, a non resident trustee, a non-resident company or fund, or a UK resident who meets split year conditions and disposes of the property during their overseas part of the year.

If you are covered by this tax, you have 30 days after the date of conveyance to report it to HMRC and pay the tax due, in order to avoid a penalty.

Do I have to pay ATED-related Capital Gains Tax?

Unlike NRCGT, ATED-related Capital Gains Tax applies regardless of residency.  However, it only applies to properties also covered ATED.  This means they must be a dwelling worth over £500,000 and owned in a corporate structure.

A corporate structure includes any company, partnership or collective investment scheme.  Dwellings are defined as properties suitable for use as a single dwelling, or in the process of being constructed or adapted for such use.

The valuation date for ATED was April 2013 for the following five years.  However, any properties that may be covered by ATED will need to have a new valuation done by April 2017 to cover the tax year 2017/2018, and the five following years.  With the newly low value bar for ATED to apply, more and more properties may be covered and therefore it is vital that owners obtain a valuation in good time.

ATED-related CGT is 28% on gains since April 2013 or, for properties which only became covered by ATED in subsequent budgets, since April of the year that they fell under ATED.

What is the difference between NRCGT and ATED-related CGT

The table below gives a simplified overview of the key criteria for each of the two forms of Capital gains tax, and the differences between them.

Non-Resident CGT ATED-related CGT
Property value Any Over £500,000
Ownership Individual or corporate Corporate
Residency Non-UK resident only Any

Can Capital Gains Tax be avoided?

The UK Government has created robust anti-avoidance rules to prevent people from artificially avoiding capital gains tax.  In the case of ATED-related CGT, there are several legitimate exceptions and reliefs which may be claimed, and these will also reduce the capital gains tax bill.  However, these still require an accurate valuation so that a return can be submitted and the reliefs claimed.

How can Anderson Wilde and Harris help?

Anderson Wilde and Harris are RICS registered Chartered Surveyors that conduct residential property valuations annually. With our extensive experience and knowledge in the property sector, and our understanding of the HMRC’s requirements, we would be happy to provide you with a consultation and a full valuation report that meets all the required standards.

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