Non-resident capital gains tax returns - update

The legislation charging capital gains tax (CGT) on non-residents was introduced with effect from 6 April 2015 and applies to gains on residential property disposed of by non-residents. Before this, non-residents were not liable to CGT.

The change brought the UK into line with many other countries where tax is charged on non-residents who make gains from owning property situated in their country.

We commented on the draft proposals in our representation TAXrep 35/14. Apart from the issues regarding the interaction with the annual tax on enveloped dwellings (ATED) CGT charges, the administration of the tax also looked problematic. Trying to collect tax from non-residents is always going to be a challenge, which is presumably why the 30 day reporting deadline was introduced.

Originally all non-residents with a gain were going to have to pay the tax within the same 30 day period, but following representations by ICAEW and others, this was changed and only those not in the self assessment system have to pay within 30 days.

Nonetheless, individuals who are in self assessment are still required to make a non-resident CGT (NRCGT) return within 30 days and then report the gain on their self assessment tax return and pay any tax due by 31 January following the end of the tax year of disposal.

The declaration on the NRCGT return says “I declare that the information I've given on this return is correct and complete to the best of my knowledge and belief. I understand that I may have to pay financial penalties and face prosecution if I give false information”, but after representation from the Tax Faculty the drop down box now makes it absolutely clear that if an agent completes the form, none of the client’s legal obligations transfer to the agent.

As a relaxation HMRC introduced a new section (12ZBA) into TMA 1970 making the return elective where a property disposal was on a no gain/no loss basis. A no gain/no loss transaction includes:

  • disposals between spouses or civil partners
  • deemed disposals of settled property which reverts to the settlor on the death of the person entitled (with effect from 6 April 1996) or life tenant (before 6 April 1996)
  • company reconstructions
  • transfers within a group including transfers of UK branch assets by a non-resident company to a UK member of the same group
  • transfers in whole or in part of the assets of a trade carried on in the UK between companies resident in other member states
  • amalgamations of building societies
  • transfer of a building society's business to a company
  • transfer after 18 February 1993 on the incorporation of a registered friendly society
  • disposals of land between the Regulator of Social Housing, the Secretary of State (for Wales), or Scottish Homes, and certain housing societies and associations
  • transfers to a harbour authority before 1 April 2013
  • transfers of land on the reorganisation of constituencies
  • disposals of assets in connection with the sharing of transmission facilities between national broadcasting companies
  • amalgamations of registered societies.

The relaxation was introduced by Finance Act 2016 which came into force on 15 September, but is effective from 6 April 2015.

It would seem that the 30 day reporting requirement is catching people out based on a discussion on our Tax Forum.

In many of the countries where CGT is charged on non-residents selling property, there is a legal requirement to use a registered legal representative, such as a notaire in France, to sell the property and they would make the capital gains notification and retain a percentage of the proceeds to pay the tax. In the UK there is no such requirement, a property can be sold without using a legal representative and thus there does not have to be a third party fully aware of the legal reporting requirements involved in the sale.

The law has now been in place for nearly two years and is clearly explained on GOV.UK, but some non-residents and their agents remain unaware of the rules. Do you have suggestions for how to improve the situation? Should the conveyancing agent have the responsibility to advise non-residents that a return is required within 30 days? The difficulty is that this agent will often not be qualified to identify which of the vendors are non-resident. Should all tax agents for non-residents who currently own UK residential property advise their clients that any sale of the property must be notified to HMRC within 30 days even when no sale is imminent? Post your suggestions on the forum discussion.

Another twist to the tale is that not all transfers between spouses are tax neutral as was reported in Practical Points in December TAXline.

  • At minimum HMRC could tell the Law Society who could tell all solicitors. I don't believe anyone acts for someone without realising they are outside the UK (know your client etc etc). Before you raise issues of liability just good sensible administrative practice needs to kick in. I am facing more than 2k of penalties for no tax liability. In my appeal (which I am still pursuing) I asked HMRC if they had informed conveyancers and solicitors of the filing obligation. No reply on that point, of course.

    I seriously suspect that with the housing market cooling the only way they are going to get anywhere near the projected tax receipts from this tax change - whose principle I actually support - is through late filing penalties. And this is what is driving it.

  • I totally agree with Graham. I'm a non-res who has just sold a central London flat for what will turn out to be a fiscal loss and neither my solicitor not my estate agent mentioned this. It's only because I get the Tax faculty emails that I picked it up myself and have now nudged my advisers into life so as to avoid late filing penalties.

  • You are right.  This is a very unfair situation.  It seems to me that it is deliberately made so hard to avoid the penalty as a revenue raising exercise on behalf of HMRC.  Incidentally quite a few of the respondents to my original question in the tax forum here and on Accounting Web seemed to think that non residents would not pay it, as HMRC would not be able to collect in foreign jurisdictions.  Doesn't that make it even more like a crooks charter?  My honest upright clients pay and they don't.

  • The system is hopeless. I've got appeals in for late returns for the most honest taxpayers imaginable, who got me the information with their normal SA paperwork, £nil tax payable but £3,200 penalties for late returns. I've just filed another return, right up against the wire, and noted to the client (who is in Abu Dhabi) that he was lucky the solicitor was aware of the requirement and referred him to us, as most are not. He said that he had self researched the issue and asked the solicitor about it. She'd never heard of it and couldn't deal with it, so referred him to us. So the clients don't know about it. The conveyancing solicitors don't know about it. The estate agents don't know about it. Most accountants I speak to don't know about it. And then regardless of whether any tax is payable, large penalties ensue. If you're going to have a mandatory 30 day return on a transaction then the only hope for enforcement is to put a requirement to withhold tax / make that return on the solicitors dealing with the conveyance, like the SDLT return - at the moment the taxpayers get hit with penalties, and have no recourse to their professional advisors for not being advised about the need to report. How hard would it be to incorporate on the SDLT return a question about the residence of the seller, which triggers the question being asked?