The new non-resident capital gains tax came into force in Guernsey on 6 April 2015. The rules intend to capture disposals of residential property in the United Kingdom by all non-residents. These notes provide a summary of who and which property is affected, and describe how a new UK tax return has to be completed within 30 days of the sale. Mark Colver, Neil Hoolahan and Caley Clarke of Grant Thornton examine the subject in detail.
Who will pay and at what rate?
Non-resident individuals pay 18% and 28%, but after an annual exempt allowance, the rate of which depends upon one's total UK-taxable income and marginal rate. Non-resident companies pay 20%. Non-resident trustees pay 28%. Personal representatives of non-residents who have died pay 28%. Any non-residents who are partners in a partnership owning such property are charged at their respective rates as in the previous categories.
Will anyone be exempt?
Offshore funds that satisfy the description of 'widely marketed' and offshore companies 'diversely owned' are exempt. See below, however, as a return will still be required.
The only property the new NRCGT affects is residential property. Commercial property remains exempt. Her Majesty's Revenue and Customs in the UK has defined residential property as a dwelling. This includes the following:
- Any building used for, or suitable for use as, a dwelling.
- Any building being constructed or adapted for use as a dwelling, including off-plan purchases in which one buys somewhere that has not been developed yet, referring solely to the sketches and dimensions.
- Any land that is at any time, or is intended to be, used with a dwelling e.g. a garden.
As the result of a consultative process, certain property has been exempted from NRCGT in the final rules. This includes the following:
- Property developments – as long as these continue to be taxed as trading income.
- Boarding schools and other institutions for children.
- Hospitals, care homes and nursing homes.
- Hotels and inns.
- Student accommodation, at present only purpose-built and having fewer than 15 bedrooms.
- Bare Land – care will be required if development commences or conversion of 'non-residential' begins.
Principle private residence relief (PPR)
On 6 April 2015, the PPR rules were amended for all residents of the UK. They were also amended to accommodate new rules for NRCGT. Someone who does not reside in the UK may only claim a dwelling in the UK to be his main residence in a particular tax year if he spends at least 90 days in that year in one or more dwelling houses in the UK. We expect this to be a rare occurrence when one is also protecting a position to maintain non-UK tax residency status. Problems are expected to arise for people who leave the UK and do not sell up for some time, as PPR is to be restricted to the last 18 months of ownership. There might also be problems for people who occupy a home under license from offshore trustees.
How to calculate the gain
There are three different ways in which the gain arising on disposal of the residential property in the UK could be calculated. The method to be used is at the discretion of the taxpayer and calculations should therefore be completed to ensure that the most tax-efficient result is achieved.
- Default method. If ownership straddles 5 April 2015. then a revaluation is sought as at 5 April 2015 and only the gain from after 5 April 2015 is taxed.
- Election for straight-line time-apportionment. In cases where ownership straddles 5 April 2015, the gain can be calculated for the whole period of ownership and then simply time-apportioned to include only the average value after 5 April 2015.
- Election for retrospective basis. For gains straddling the 5 April 2015 cut-off point, one can also opt to tax the entire gain. This may be particularly advantageous for properties on which a loss has occurred before 2015.
Companies will be entitled to indexation allowance.
An informal valuation from an agent, coupled with other evidence (Internet property valuation searches such as Zoopla) should suffice. If there are any unusual features or there has been a disproportionate pre-2015 gain, then we recommend that further evidence for support is recorded.
Interaction with ATED
It is important to note that the NRCGT is a separate tax to the ATED-related capital gain. Importantly, the Annual Tax on Enveloped Dwellings or ATED takes priority on properties which are captured by ATED, otherwise NRCGT will arise. Properties may switch over time between the two regimes, complicating people's calculations.
A brand new return form, covering 8 pages, has been issued and must be completed and submitted electronically. A computation also needs attaching.
HMRC should be notified with this form within 30 days of the conveyance of any property that is subject to the new rules. If more than one disposal occurs on the same day, a single return can be submitted. For inter-group transfers, no return is required.
Even those claiming a relief will be required to complete returns, including exempt funds, and also anyone who calculates that no CGT is due.
Payment of tax
If another UK form of self-assessment return is being submitted, that can be used to then also make the CGT payment (but the above new return re disposal is still also needed). We expect this to apply for non-resident landlords. The CGT can then be paid as part of that annual return process. Otherwise, the tax will also have to be paid by the 30-day deadline. HMRC will email a tax reference to the relevant person to provide for payment after the return is submitted. We hope that the return is automatically generated and therefore fairly immediate but the time-line for this process will have to be built into the deadlines.
If losses occur, these can be carried forward to offset against any further disposal of UK residential property by the same non-resident or group of companies. There is no carry-back option.
There continues to be no CGT on the sale of shares in an offshore company, but we expect a buyer to request a discount for the inherent gain to date locked within the company.
Groups can make an irrevocable election for pooling treatment, which also allows just one company to file returns and intra-group transfers at no gain/loss. There is a 30-day time limit and a one-year restriction for new group members, plus 'de-grouping' exit provisions.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.