Guidance on calculating taxable gain or loss.
From 6 April 2015, a non-resident individual needs to inform HMRC if they have sold or disposed of UK residential property. The return is due within 30 days of conveyance and must be done electronically. The disposal should be reported even if there is no tax to pay or the taxpayer is registered for self-assessment.
Basis of charge
The charge applies to gains from 6 April 2015 made on disposal of UK residential property in a period when the disposer is not UK resident. It applies to individuals, partners in partnerships, trustees of trusts and close companies (controlled by five or fewer persons).
Residential property is defined as:
- an interest in UK residential property or properties in the process of being constructed or adapted for use as a dwelling or
- a right to acquire a UK residential property ‘off plan’ or
- main home if it is very large or let out and used for business or had long periods of absence.
Excluded as dwellings are:
- care or nursing homes, hospitals or hospices, military accommodation, prisons or purpose built student accommodation with at least 15 bedrooms
- dwellings that are unsuitable for use as such for a period of 90 consecutive days as a result of accidental damage or other damage outside the control of the owner can be disregarded for the period for which they were unsuitable (up to 90 days) provided this came to an end before the date of disposal. Damage arising from works to alter the building that would have made it unsuitable for use as a dwelling for 30 days or more is excluded.
The relevant ownership period is the period from the later of the date of purchase and 6 April 2015 up to the day before the disposal.
The calculation of the gain can be done in one of three ways:
- Rebasing – using the market value at 5 April 2015. This is the default position, so for disposals of UK residential properties owned before 6 April 2015 the standard approach for calculating the gain is to compare the net sale proceeds with the market value of the property as at 5 April 2015
- Time apportionment of the gain since 5 April 2015. This is done by working out the gain over the whole period (date property was acquired to date it was disposed of) and then working out the gain since 5 April 2015 as a proportion, using the straight line method of apportionment.
- Working out the gain over the whole period – an election to be taxed on the gain or loss over the entire period of ownership of the asset (rather than the time apportioned element). This computation method may only be worth considering if the property is sold at a loss.
The elections are irrevocable, and must be made either on the relevant tax return or on the return relating to a disposal.
HMRC states in its guidance on valuations that:
‘It’s your responsibility to get an accurate valuation of the property. HMRC doesn’t have a preference for how this should be done. You may want to use a professional valuer or get more than one valuation. If you’re using the rebasing computation method it wasn’t necessary to get a valuation in April 2015. You can wait until you make the disposal but it would be helpful to record what condition the property was in and any unusual features as this will help make a fair valuation.
You can ask HMRC to check your valuation by using form CG34. This check takes at least 2 months and can only be requested after disposal. You’ll need to report the disposal within 30 days of the property being conveyed and make payment of the tax due.’
Where the property has not been suitable as a dwelling for the entire period after 6 April 2015, the relevant gain is time apportioned in days.
Capital gains tax rate
Tax is payable by individuals at 18% and 28% depending on their UK taxable income, but the CGT annual exempt amount will also be available. Trusts and personal representatives of deceased persons will be liable at 28% with the trust annual exempt amount being available, or the full AE for personal representatives in the year of death or subsequent two years.
The tax calculated is based on the assumption that no further disposals will take place in the tax year. A reasonable estimate is required of the individual’s taxable income to arrive at the appropriate tax charge; provided the estimate is reasonable, no penalty will arise.
PPR claims – non-residents
Private Residence Relief (PPR) will be available provided that the owner lived in the property as his only or main home at some time before 5 April 2015. If the property qualifies as PPR then last 18 months, letting relief, absence and job-related accommodation reliefs would also apply. Because of the ‘last 18 months’ relief, no tax is due if the property is sold before 6 October 2016. Note that as the disposer is non-resident, the property only came into charge to CGT on 6 April 2015 and so periods of absence before that date will be irrelevant.
If the property is sold on or after 6 October 2016, to qualify for relief for each tax year after 5 April 2015 the owner and their spouse must have spent at least 90 days in the UK home during that tax year and must have nominated the home as their only or main home.
Losses on residential property owned by non-residents can only be set against gains on the same type of property. Unused losses are carried forward to use against UK residential property disposals in a later tax year.
If an individual changes their residency status from non-resident to UK resident, they will be able to use unused losses on UK residential property as general losses against other chargeable gains.
If a UK resident becomes non-resident, they will be able to use unused UK residential property losses against UK residential property gains that they make in future. Losses incurred by an individual in the year of death can be carried back up to three years (as for normal capital losses) but are restricted to be set off against non-resident capital gains.
Article extracted from ACCA “In Practice” Newsletter