2015-04-07-KPMG_Global-United_Kingdom_–_Legislation_Revised_on_Sale_of_Residential_Property_by_Nonresidents_5页_84kb

United Kingdom – Revised Legislation on Sale of Residential Property by Nonresidents

Core Content

The United Kingdom introduced revised legislation effective from 6 April 2015, which subjects non-U.K. residents to capital gains tax (CGT) on the sale of U.K. residential property. This change extends the scope of CGT to non-residents and modifies the conditions for claiming Principal Private Residence (PPR) relief.

Main Points

1. Reporting Obligations

• Non-U.K. residents must report the sale of U.K. residential property within 30 days of the disposal by filing a NRCGT return.
• The return must include all required information, and if tax is due, it must be paid within the 30-day period.
• The return is required regardless of whether a gain or loss is made, and even if the individual is in self-assessment.

2. Tax Assessment

• CGT is applied at 18% for basic rate taxpayers and 28% for higher or additional rate taxpayers.
• Taxpayers must estimate their taxable income for the tax year to determine the correct rate.
• No penalties will be applied if the estimate is fair and reasonable, even if the final amount differs.

3. Residence Status

• The Statutory Residence Test (SRT) is used to determine residence status in the U.K.
• For overseas territories, an individual is treated as resident if they are liable to tax in that territory for more than half the U.K. tax year, either by residence, domicile, or by applying the SRT with the territory substituted for the U.K.
• The term "territory" is used to include areas like the Channel Islands, which are not full countries.

4. Presence in the Property – Day Count Test

• A day count test is now required for PPR relief when the property is not in the individual's residence territory.
• The test is met if the individual or their spouse/civil partner spends at least 90 nights in the property during the tax year.
• No single night can be counted twice if both the individual and their partner are present.
• If the individual owns multiple properties, nights can be aggregated.
• For partial ownership in a tax year, the 90-night threshold is reduced pro-rata.

5. PPR Elections

• Individuals with an interest in more than one property may need to make a PPR election.
• The election must be made within two years of acquiring the second property.
• A second opportunity to make the election is available when filing the NRCGT return, provided the property has not been sold.

6. Spouses and Civil Partners

• Spouses and civil partners can only claim PPR relief for one property.
• Both parties must make the same PPR claim, or one must obtain written agreement from the other if only one is required to file.

Key Information

• The legislation is based on the Finance Act 2015.
• The NRCGT return is a new requirement for non-residents selling U.K. residential property.
• The day count test provides a clearer mechanism for determining PPR eligibility.
• Uncertainty in residence status does not excuse the 30-day filing deadline.
• HMRC has introduced enquiry and penalty powers similar to those for self-assessment returns.
• Taxpayers should consult their advisers for clarification on how the new rules apply to their specific situations.

KPMG Notes

• The term "territory" is used to ensure jurisdictions like the Channel Islands are included.
• The modified day count test accounts for individuals arriving home after midnight.
• KPMG LLP (U.K.) will continue to engage with HMRC for further clarity and updates, though policy discussions may be delayed until after the general election on 7 May 2015.

Conclusion

The new legislation introduces greater transparency and clarity in the reporting and taxation of non-U.K. residents selling U.K. residential property. It emphasizes responsibility on the part of the taxpayer and introduces new mechanisms for determining residence and presence in property. Employers and assignees should be aware of these changes to avoid unexpected tax liabilities and ensure compliance with the 30-day reporting requirement.