Taxation for Non-Residents with UK Property – the Changes You Should Know
Over the past few years, there have been several changes introduced relating to how non-UK resident individuals are taxed on property in the UK.
While one significant change took place in April 2015, at which point the scope of capital gains tax was increased to cover the disposal of UK residential property by a non-UK resident, there have been other changes to how UK property held by non-UK resident individuals is taxed.
Commercial property taxable from April 2019
While non-UK resident individuals have been subject to tax on the disposal of UK residential property since 2015, non-UK resident individuals have more recently been subject to tax on disposals related to commercial property.
This is because, since 6 April 2019, the capital gains tax regime was extended to cover disposals related to interests in UK land held by non-UK residents.
Reduction in Private Residence Relief (PRR)
While this change isn’t strictly limited to non-UK residents, the upcoming change to Private Residence Relief (PRR) is one of the more high-profile changes to impact property taxation for individuals.
Under the current rules, PRR provides an exemption from capital gains tax on the sale of a residential property for the final 18 months of ownership. This means that, even if the property is let out during this final 18-month period, no capital gains tax should arise.
From April 2020, the amount of PRR is to be reduced to 9 months for the majority of property owners. For non-UK resident individuals who rent out their UK properties, this change may have a substantial impact on the amount of any capital gain that may arise when a property is ultimately sold.
Restrictions to lettings relief
Another well-publicised change that is set to affect both UK resident and non-UK resident property owners is the revision to lettings relief.
At present, lettings relief provides up to £40,000 in tax relief on the sale of a property where that property has, at some point in time, been the owner’s main residence.
Under the upcoming changes, which are also set to apply from April 2020, lettings relief should only be available where an owner is in shared occupancy with the tenant(s).
While this change is unlikely to impact non-UK resident landlords that have never lived in their UK property, it may impact individuals that had a UK property as their main residence and then let it out once they moved abroad, as lettings relief may no longer be available to them.
There are various reporting obligations a non-UK resident individual should be aware of in respect of their UK property.
Non-resident capital gains tax return
Currently, a non-resident capital gains tax return should be submitted within 30 days following a sale or disposal of UK property or land. The 30-day deadline runs from the completion of conveyance.
The return should be filed even if no tax is due, a loss arises, or if the individual is registered for self-assessment. There are special rules in place if an individual gives a UK property to a spouse, civil partner, or to charity.
Further information relating to the non-resident capital gains tax return can be found at https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-resid...
Aside from non-resident capital gains tax returns, non-UK resident individuals that let out a UK property should bear in mind that they should file a self-assessment tax return each year unless advised otherwise by HMRC. The “residence” and “property” sections of the return should be completed.
Overseas reporting obligations
If your client is non-resident for UK tax purposes, it is likely they will also have some form of reporting or filing obligation in their tax jurisdiction of residence in respect of their UK property income or UK property disposal. Your client may not be aware of this, so it is always worth highlighting this possibility to them.
Taxfiler has been designed with accountants in mind, providing cloud-based accounts and tax preparation and filing services. For further information, speak to a member of the team on 0330 2233 406 or email [email protected].