Extension of Non-Resident Capital Gains Tax should set alarm bells ringing for overseas property owners – and their conveyancers
5 April 2019
From April 2019, non-resident capital gains tax (NRCGT) extends to non-residential UK property and substantial interests in “UK property rich entities”.
We cannot stress enough how important it is for clients take advice early, especially considering the short deadlines involved, coupled with the information that may be required for the tax computation.
From April 2019, non-resident capital gains tax (NRCGT) extends to non-residential UK property and substantial interests in “UK property rich entities”. Given the number of people who have failed to submit NRCGT tax returns since it was introduced for residential property in 2015, this should set alarm bells ringing for non-residents and conveyancers alike.
Where a non-UK resident client* disposes of UK residential property, they must submit a non-resident capital gains tax return to HMRC within 30 days.
This has been the law since 6 April 2015 but, despite this, many are failing to submit returns within the deadline, or at all. From April 2019, the tax will also apply on sales of commercial property and there are concerns that similar failures will lead to large penalties for overseas owners.
The first question is: why are people failing to file these NRCGT returns? The most obvious answer is: how is someone resident overseas meant to be aware of their obligation to file a return? To my knowledge, HMRC have not publicised the legislation overseas and, even if it has, it is highly unlikely someone affected by the legislation would have seen it.
Where non-resident clients have appointed a solicitor to handle a UK residential property sale, or a transfer by way of gift, surely they ought to know about the obligation to file a NRCGT return and pass this on to their client? Unfortunately, this does not appear to be the case. Perhaps HMRC’s NRCGT publicity (if there is any) would be better directed at conveyancing solicitors.
Indirect disposals of UK property (for example shares in a property company) could easily be missed as the NRCGT regime applies where the disposal involves rights to assets that derive at least 75% of their value from UK land.
To what extent can a non-UK resident rely on ignorance of the law to avoid late filing penalties?
There have been some successful appeals against HMRC penalties for late filing of an NRCGT return at the First-tier Tax Tribunal (FTT) where ignorance of the law was held to be a reasonable excuse and penalties cancelled.
However, before non or late payers get too comfortable, they should know that more appeals have failed than succeeded. The chances that ignorance of the law will allow them to wriggle out of penalties are slim.
What are the penalties?
Failure to file a return within 30 days can result in HMRC imposing late filing penalties and these can be significant. For example, the minimum penalty for filing over 12 months late is £700. This does not include the daily penalties that HMRC can also impose of up to an additional £900. Where NRCGT of over £6,000 is due, the penalties are higher as they are tax geared. Non-compliance can therefore be an expensive mistake.
|30 days late||£100|
|3 months late||£300 or 5% of tax due, whichever is greater|
|6 months late||£300 or 5% of tax due, whichever is greater|
Once an NRCGT return is submitted, a taxpayer must also pay any NRCGT due within the same 30 day this period unless they qualify for deferral. Note that an NRCGT return is required even if the disposal crystallised a loss, or there is no chargeable gain due to reliefs available to the taxpayer.
The NRCGT return
Considering the short timeframe to file a NRCGT return with HMRC, advance planning to complete the tax computation is advisable.
This is because clients may need to obtain a valuation as at April 2015 (April 2019 for non‑residential UK property) as well as locating details of the original acquisition and improvement costs. Once this information is to hand, the gain/loss can be calculated using one of three computation methods available. The taxpayer is able to select the computation that is most beneficial to them.
Properties within the Annual Tax on Enveloped Dwellings (ATED) regime will no longer be subject to ATED-related CGT from 6 April 2019 and will instead be subject to NRCGT. This removes some of the complications previously experienced and will generally result in a tax saving.
How can New Quadrant Partners help?
We cannot stress enough how important it is for clients take advice early, especially considering the short deadlines involved, coupled with the information that may be required for the tax computation. We are happy to discuss clients’ future plans to sell, or gift a property that will be subject to NRCGT and our team is on hand to deal with your enquiries in a timely fashion. If any conveyancing solicitors would like some in-house training on this subject, please do get in touch and perhaps together we can help prevent unnecessary late filing penalties.
*For these purposes a non-UK resident includes individuals, trustees and companies.