With the impending changes to property tax, it’s important to communicate some key changes to your clients.
BY ANGELA KEERY
Following a period of consultation, from April 2020 there will be changes to the payment of capital gains tax (CGT) on residential property by all individuals who are filing UK tax returns under self-assessment. This change will apply to both residents and non-residents. Currently, non-residents must file a return within 30 days of disposal but have the option to pay the tax on 31 January with their self-assessment tax payment, which is when UK residents are required to file their returns and pay the CGT due. From April 2020, both UK resident and non-residents will have to make a payment on account within 30 days of the completion of the disposal of UK residential property. A payment on account will also need to be calculated when a UK resident disposes of an overseas residential property unless the gain is covered by double tax relief or the remittance basis applies.
T
hese are significant changes for UK residents disposing of UK property and one that we need to make clients and their solicitors aware of.
Non-residents
From 6 April 2015, non-residents have been subject to capital gains tax on the disposal of UK residential property and many off-shore investors have been caught out by the strict 30-day time frame post-disposal date in which they must submit the non-resident capital gains tax (NRCGT) return, even if no gain has been made, and pay any tax that is due.
At present, there is no capital gains tax charge on the disposal of commercial property by non-residents (unless the property was held on a trading account). However, draft legislation has been published to implement an extension to the charge to tax on gains. The new regime, due to come into effect in April 2019, will catch all disposals of UK investment property by non-residents. The key changes are:
- Most non-residents will be chargeable to UK tax on gains accruing on the disposal of UK commercial property;
- The existing capital gains tax charge for non-residents disposing of UK residential property will be extended to indirect disposals of properties;
- Annual Tax on Enveloped Dwellings (ATED) related capital gains tax, which has applied to some residential properties owned by companies since 2013, will be abolished from April 2019; and
- There will be a rebasing for tax purposes to April 2019 values for both commercial property and shares in “property rich” companies (see indirect disposal of properties below).
Indirect disposals of properties
Disposals of UK investment properties often involve a sale of the company owning the property rather than a sale of the property itself and in most cases gains are not currently taxable for non-resident investors. However, under the draft legislation, gains on share disposals of “property rich” companies will be charged UK tax where both of the following conditions are met:
a) 75% or more of the gross asset value at the date of disposal is represented by UK property; and
b) The individual holds (or has held within two years prior to disposal) an interest of 25% or more in the company.
Shares in such companies will be re-based to their market value in April 2019. There will be an exemption available for companies holding property for trading purposes, such as hoteliers and care home operators. In addition, some exemptions are expected to be available to widely-held entities which would not be chargeable to corporation tax if they are UK resident – pension funds, for example. The mechanism for this is subject to further consultation but one of the proposals is to introduce tax advantaged status to the offshore funds in exchange for complying with HMRC reporting obligations.
Calculating and reporting
For non-residential property brought into charge, only gains attributable to the change in value from April 2019 will be chargeable. Gains arising to individuals will be chargeable to capital gains tax and gains arising to companies will be chargeable to corporation tax. The present reporting deadlines for residential gains will be mirrored; disposals will need to be reported to HMRC on a non-resident capital gains tax return within 30 days of completion.
Tax payment
For corporations, a payment on account will be required with the filing of the NRCGT return by companies from 6 April 2019. Individuals, however, will have to file a return within 30 days of disposal but have the option to pay the tax on 31 January with their self-assessment tax payment. However, from April 2020, when they dispose of residential property they will have to make a payment on account within 30 days of the completion of the disposal.
How can you prepare?
You should advise all clients (resident and non-resident) of the forthcoming changes and request that they give you advance notice of impending disposals. The 30-day reporting deadline for residential disposals is often missed and there have been a number of appeals lodged against penalties. If you have overseas clients with UK property, it may be prudent to organise valuations for April 2019 to be one step ahead when it comes to capital gains tax reporting.
Angela Keery is a Tax Director at BDO Northern Ireland.
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