View the related Tax Guidance about Non-resident capital gains tax (NRCGT)
Non-resident capital gains tax (NRCGT) on UK land ― individuals
Non-resident capital gains tax (NRCGT) on UK land ― individualsBackgroundHistorically, only UK resident individuals and entities, together with temporary non-UK resident individuals and those operating via a UK permanent establishment, branch or agency, were subject to UK capital gains tax (CGT), whilst non-UK residents were not. However, this was widened from 6 April 2013 to include disposals of UK dwellings owned by non-resident companies, partnerships and collective investment schemes where the dwelling was subject to the annual tax on enveloped dwellings (ATED) charge, which was subsequently repealed in April 2019 due to the introduction of the regime discussed below. For more on the ATED charge and the ATED-related CGT charge, see the Overview of the ATED regime guidance note.From 6 April 2015, the CGT regime was extended to non-UK residents disposing of UK residential property. This was known as the non-resident capital gains tax (NRCGT) regime. The NRCGT regime was rewritten and extended to cover both non-residential UK property and indirect disposals of UK property with effect from 6 April 2019, meaning all disposals of interests in UK land by non-residents are within its scope. To prevent confusion, these are referred to in this guidance note as the NRCGT 2015 regime and the NRCGT 2019 regime, however, they may also be referred to as FA 2015 NRCGT or FA15 NRCGT and FA 2019 NRCGT or FA19 NRCGT.This guidance note discusses the NRCGT 2019 regime as it applies to individuals disposing of UK property on or after 6 April 2019. For information
Introduction to capital gains tax
Introduction to capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.See Checklist ― calculation of capital gains and losses for issues to consider when reporting client gains and losses.At Spring Budget 2024 the Chancellor announced a change to the rates of CGT for disposals of residential property. From 6 April 2024, the higher rate for gains from residential property are reduced to 24% from 28% so that such gains are taxed at a rate of 18% to the extent that they do not exceed the individual’s unused basic rate band and at 24% to the extent that they exceed the amount of the basic rate band. The rates for carried interest remain 18% and 28%. Chargeable personA chargeable person could be an individual, a trustee, a personal representative or a company, although companies are subject to corporation tax on chargeable gains not capital gains tax. For further discussion, see CG10700 and Simon’s Taxes C1.102. Exempt persons include, amongst others, charities (so long as the gain is applicable and applied for charitable purposes) and local authorities. See CG10760P.Generally, if an individual is resident in the UK in the tax year they are chargeable to tax on capital gains arising in that tax year. See ‘Overseas aspects’ below for a discussion on the taxation of gains on non-resident individuals and those accessing the
Self assessment ― reasonable excuse for late filing
Self assessment ― reasonable excuse for late filingIf a penalty has been correctly charged by HMRC, the taxpayer can only appeal if they believe they have a ‘reasonable excuse’ for failing to comply with the legislation. This is discussed below. However, even if the Tribunal finds that the taxpayer does not have a reasonable excuse, it may reduce the amount of the penalty payable due to special circumstances. See Simon’s Taxes A4.567D.The term ‘reasonable excuse’ is not defined in the legislation and therefore the meaning is continually being reassessed by the courts ‘in light of all the circumstances of the particular case’. HMRC considers a reasonable excuse to be ‘something that stops a person from meeting a tax obligation despite them having taken reasonable care to meet that obligation’. In order to assess whether the excuse is reasonable, HMRC assesses ‘the experience, knowledge and other attributes of the person who has failed’ when deciding whether the taxpayer has taken reasonable care to meet the obligation. Therefore, a reasonable excuse often arises where there is an unexpected or unusual event (or a combination of such events) that is either unforeseeable or beyond the taxpayer’s control.Often if the taxpayer could reasonably have foreseen the event, whether or not it is within their control, HMRC will expect the person to take steps to meet their obligations.This guidance note considers the concept of reasonable excuse. For commentary on how to build a case for reasonable excuse, see the Winning reasonable excuse cases guidance
Use of capital losses
Use of capital lossesIf an individual sells a chargeable asset and makes an allowable loss, how can this be relieved?First of all, since the simplification of capital gains tax from 6 April 2008, the proforma to calculate a loss is the same as the proforma to calculate a gain. See the Basic calculation principles of capital gains tax guidance note for more details. Broadly, a loss arises if net proceeds after incidental costs of sale are less than the total of the acquisition costs plus any allowable enhancement expenditure. Usually, allowable capital losses are set against chargeable gains, reducing the amount of the gain.However, where a loss has been made on unquoted shares, the loss may be able to be set against income instead of gains. This is usually a more tax efficient use of the loss, as income is taxed at higher rates than capital gains. See the Losses on shares set against income guidance note for details of the conditions which must be met.Also, certain unused trading, post-cessation trading or employment income tax losses can be converted into capital losses in order to be set against the individual’s capital gains. The converted loss is regarded as a capital loss for the same tax year as the income tax loss arose, and takes priority over capital losses brought forward from earlier years. For details of the conditions that must be met and the amount of the loss that can be converted, see the Sole trader losses ― established
Gains attributable to participators in non-UK resident companies
Gains attributable to participators in non-UK resident companiesAs part of the changes introduced by FA 2019, Sch 1, TCGA 1992, Part 1 was rewritten. The new TCGA 1992, Part 1 largely restates the existing law but also includes additional provisions to bring disposals by non-UK residents of UK land from 6 April 2019 within the charge to tax. The rewrite was intended to modernise and simplify the structure of the UK capital gains rules as well as to accommodate the rules on disposals of interests in assets relating to UK land by non-UK residents. Where the legislation has been restated, the legislative links to the previous law shown in this guidance note are for reference only. Non-resident companies are not normally liable to tax on chargeable gains even if the assets disposed of by the company are situated in the UK. The main exceptions to this are:•where the assets are used for the purposes of a trade carried on in the UK through a permanent establishment (PE), such as a branch or agency•for disposals made between 6 April 2013 and 5 April 2019, where the assets are interests in UK residential property and the whole or part of the gain is ‘ Annual Tax on Enveloped Dwellings (ATED) related’ or is within the scope of the Finance Act 2015 non-residents CGT (NRCGT) regime. See the Overview of the ATED regime and Non-resident capital gains tax (NRCGT) on UK residential property (2015–2019 rules) guidance notes for further details
Direct disposals of interests in UK land by non-residents
Direct disposals of interests in UK land by non-residentsThis guidance note considers the taxation of direct disposals of interests in UK land by non-resident persons, including companies.Prior to 6 April 2019, only gains on direct disposals by non-resident persons of UK residential property interests were potentially subject to UK tax. This would have been the case where the capital disposal was annual tax on enveloped dwellings (ATED) related or was caught by the FA 2015 non-resident CGT (NRCGT) rules (referred to in this guidance note as the ‘NRCGT 2015 regime’). See the Overview of the ATED regime and Non-resident capital gains tax (NRCGT) on UK residential property (2015–2019 rules) guidance notes for further details on the operations of those rules. In both cases, the gains were subject to CGT, either at 20%, if caught by the NRCGT 2015 rules, or 28%, if ATED-related. The normal rule charging companies’ capital gains to corporation tax did not apply.However, as a result of legislation introduced in FA 2019, Sch 1, all types of direct disposals of ‘interests in UK land’ (see below) by non-residents made on or after 6 April 2019 are within the scope of capital gains, widening the remit significantly (the extended regime is referred to in the remainder of this guidance note as the ‘NRCG 2019 regime’). The historic picture can be described as follows. From 6 April 2013:•direct disposals of UK residential property held by non-natural persons (NNP) became subject to ATED-related CGT, whether the NNP was UK
Foreign capital gains and losses
Foreign capital gains and lossesThis guidance note discusses the capital gains tax (CGT) position of the following categories of people:•resident and domiciled or deemed domiciled in the UK•resident but not domiciled or deemed domiciled•not resident in the UKThe guidance note does not cover the position of temporary non-residents. These are people who are no longer UK resident but remain within the scope of the UK CGT regime. See the Temporary non-residence and UK capital gains tax liability of temporary non-residents guidance notes.Guidance on reporting foreign capital gains and losses is given at the end of this guidance note.UK resident and domiciled An individual who is UK resident and domiciled is taxed on their worldwide capital gains arising in the tax year. This is known as the arising basis of taxation. Any capital losses can be set against their gains, see the Use of capital losses guidance note. Residence status is determined in the same way for CGT and income tax, and is discussed in the Residence ― overview guidance note. For commentary on domicile status, see the Domicile guidance note. In other words, for the person who is UK resident and domiciled, it does not matter whether the gains are from foreign assets or UK assets. The only difference between UK and foreign gains is that, if they have suffered foreign tax on the capital gain, they can normally claim double tax relief. See the Foreign tax relief guidance note and HMRC Helpsheet HS261.UK resident and
Non-resident landlords ― choice of acquisition vehicle
Non-resident landlords ― choice of acquisition vehicleNon-resident investors that rent UK residential and commercial real estate are subject to tax on the rental income derived from the properties. The non-resident will also be subject to tax on any gain arising on the eventual disposal of the UK property. The tax consequences vary depending on the choice of vehicle used to acquire the property.This note considers the UK tax implications where the UK property is acquired by a non-resident that is:•a company •an individualRegardless of the choice of acquisition vehicle, the UK operates a withholding tax regime for rents payable to non-UK resident landlords known as the non-resident landlords scheme (NRLS). For more information on the scheme, see the Non-resident landlords scheme (NRLS) guidance note.The taxation of capital gains realised by non-resident investors on UK land or property has changed significantly from 6 April 2019. From that date, all disposals of UK property by non-residents were brought within the scope of UK tax (commercial from 6 April 2019, residential already chargeable from 6 April 2015). This includes direct disposals of UK commercial and residential land as well as disposals of interests in companies and other entities which derive 75% or more of their gross asset value from UK land. These are briefly discussed below. For more information, see the Disposals of UK land by non-resident companies (NRCG regime) ― overview guidance note. If the property is commercial, the NRL will need to consider whether it should register for
Disposal of land ― individuals
Disposal of land ― individualsIf an individual disposes of land (which includes buildings and any estate or interest in land or buildings), on first principles it will be taxable as either:•trading income (if it is a trade or a venture in the nature of trade), or•a capital gain (but see anti-avoidance below)For a discussion of when the disposal of land or buildings could be considered to be trading income, see the Application of the badges of trade guidance note. The rules on treating the sale as trading income have priority over the capital gains tax treatment discussed in this guidance note.However, what if the disposal of land is not considered to be a trade or a venture in the nature of trade but it is still a disposal with the intention of making a profit similar to that of a property dealer? This is where the transactions in UK land anti-avoidance provisions bite to treat the gain as trading income. The conditions and the types of situation caught by this anti-avoidance provision are discussed in detail in the Transactions in UK land ― individuals guidance note.The commentary below explains the various types of part disposal associated with land. Guidance notes on topics associated with the disposal of land but not specifically covered within this note are listed below in ‘Other points to consider’. Also, bear in mind that if the individual is not resident in the UK and the disposal is of UK land, the computation rules
Utilising capital losses
Utilising capital lossesWhy capital losses are importantCapital losses are usually set against the capital gains that arise in the same year as the loss, reducing the total taxable gains for that year. Losses not used in this fashion are normally carried forward to be set against the next available gains.However, in certain circumstances, those losses may be blocked, restricted, carried back to earlier tax years or possibly treated as if they were income tax losses (see below).Where the taxpayer is subject to more than one rate of capital gains tax in a single tax year, they can choose which gains should be reduced by their capital losses so that their tax liability is reduced to the minimum possible.If a taxpayer makes a claim to defer chargeable gains for an earlier year, the use of losses may be disturbed, which can have a knock-on effect for several tax years.Capital losses must be quantified and claimed before they can be used. See the Use of capital losses guidance note for how capital losses arise and how to claim them.Identify special lossesWhere the taxpayer has made a capital loss, you first need to determine if the loss arises under one of the special circumstances that limit or expand the use of that loss, see below.EIS, SEIS or SITR investmentsEnterprise investment scheme (EIS) and seed enterprise investment scheme (SEIS) are designed to encourage investment by individuals in unquoted trading companies. The social investment tax relief scheme (SITR, also known as SI tax relief)
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