Non-UK residents must be wary of a 30-day deadline for filing tax returns under the non-resident capital gains tax (‘NRCGT’) legislation on UK residential property, writes Matthew Peto
January can be a stressful time of the year, often exacerbated for many by ‘dry January’ and the looming self-assessment tax return deadline (I’m not sure which is worse?!). Unfortunately, for non-UK residents with UK residential property, filing a tax return might need to happen more than once a year.
Following changes to the law made in 2015, non-UK residents are now within the scope of capital gains tax (CGT) if they sell, or otherwise dispose of (e.g. by gift), their residential property in the UK on or after 6 April 2015 (note the current emphasis on residential property, although the government does plan to extend the law to all types of UK property from April 2019).
Broadly, CGT is charged on the difference between the sale price and the purchase price, typically at either 18 per cent or 28 per cent. Those that own UK property, but predominantly live elsewhere, may be able to benefit from a combination of rebasing (essentially where the purchase price is increased, reducing the chargeable gain) and various exemptions and reliefs, meaning in many cases a CGT charge will not arise. However, as time moves and/or if property prices continue to rise, a CGT charge becomes more and more likely.
Many non-UK residents have sensibly declared the sale of a residential property on their annual self-assessment tax return. However, as part of the NRCGT legislation, the government also requires a standalone tax return to be filed within 30 days of the sale. This must be completed regardless of whether the sale results in a gain or a loss and despite already having filed a self-assessment tax return.
There are penalties for late filing and HMRC is taking quite a hard stance. Indeed, the most recent challenges to the penalties have been dismissed by the Tax Tribunal, despite the fact that the taxpayers had no idea about the NRCGT legislation and no NRCGT was actually due – the Tribunal’s view ultimately is that ignorance of the law is not an excuse.
So what are the potential penalties for late filing? If you miss the deadline by:
- up to 6 months, you will get a penalty of £100
- more than 6 months, a further penalty of £300 or 5 per cent of any tax due, whichever is greater
- more than 12 months, a further penalty of £300 or 5 per cent of any tax due, whichever is greater.
Although the fixed penalties are relatively modest, if there is a NRCGT liability then the penalties of 5 per cent of any tax due could be more significant and rather costly.
There are some, albeit limited, ‘special circumstances’ when a return either doesn’t need to be filed (e.g. a property transfer between a husband and wife) or can be filed late (e.g. where it is uncertain on completion that the sale falls within the NRCGT legislation, the return only needs to be submitted within 30 days of the day on which there is certainty that a NRCGT sale has occurred).
It is worth noting that the NRCGT legislation doesn’t just apply to individuals. Non-resident trustees, executors and some companies must comply too.
As for the tax (if there is any), this similarly needs to be paid within 30 days of the sale, unless a self-assessment tax return is completed, in which case you are permitted to pay the NRCGT within the usual self-assessment timescales.
Further detail and links to the online NRCGT return can be found here: https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property.