New tax trap for Expats selling UK property – Non Resident Capital Gains Tax

Non UK tax residents are generally not liable to UK Capital Gains Tax however when it comes to residential property sales there is a specific regime with short reporting deadlines and stiff penalties for failure to disclose.

Tick, tock, 30 Day Clock

Under legislation introduced in April 2015, non UK tax residents must report sales of UK residential property to HMRC online within 30 days of sale. This applies irrespective of whether there is a capital gain or loss, or the property was formerly used as a private residence.

Any tax payable is also due within 30 days unless the seller already files tax returns with HMRC under the Self Assessment regime, in which case the normal deadline of 31 January following the end of the tax year continues to apply.

Non Resident Capital Gains Tax can be calculated based on the appreciation in value of the UK residential property compared to either its original cost or its open market as at April 2015.

This means that often there is no capital gain realised for tax purposes as the property has not increased in value between April 2015 and the date of sale.

Sting in the tail

Failure to comply with HMRC’s 30 day reporting deadline results in hefty fixed penalties of up to £1,600 per person, and these are applied by HMRC regardless of whether there is any tax payable. If there is tax due, further tax-geared penalties can also be applied.

The role of the seller, the solicitor and the tax adviser

The seller is responsible for making the appropriate declaration within the 30 day deadline. If the property is owned jointly, each seller is required to make a disclosure and the penalties mentioned above can be applied to each joint owner.

It is not necessarily the selling solicitor’s responsibility to deal with this on the seller’s behalf unless it is specifically provided for within their terms of business.

The tax adviser may be unaware of the sale of the property until they are notified when preparing the tax return for the tax year in question, by which time it will be too late to avoid late-filing penalties.

Don’t be caught out

If you are based overseas and thinking about selling UK residential property then contact us early.

If you are a solicitor concerned about clients who could be affected by this then please ask us about our NRCGT filing service.

For further guidance or assistance on Non Resident Capital Gains Tax please contact Lynn Gracie or your usual AAB contact.