TQOTW: Recent CGT Changes

My client is a non-resident individual. He has decided that he enjoys the sun so much that he will be selling his UK flat and commercial property also in the UK as he has no plans to return.  I understand that there have been some changes with regards to capital gains tax in 2019 and some further changes this year, in 2020. Please can you let me know what to look out for?

The changes that you refer to are set out in Schedule 2 of the Finance Act 2019 (‘FA 19’).

This schedule sets out the changes to the capital gains tax rules that apply to both UK residents and non-residents. However, there are some notable differences in how the new rules apply to those affected. Your client is non-resident and as such both the rule changes from April 2019 and April 2020 will apply.  In contrast, the rule changes relating to UK residents principally apply from 2020.

The changes center around the filing date and the payment date. For context, let’s have a look at how these rules have evolved in recent years.

Between 2015 and 2019 a non-resident individual was subject to tax in the UK in respect of gains arising from a disposal of residential property (see Schedule 1B TCGA 1992 for a definition of a residential property gain). From 6 April 2019, the scope to tax has been extended to cover both residential and commercial property and therefore the disposal of both of his properties will now be subject to capital gains tax.  The scope has further been widened to include the direct disposal of UK land and the indirect disposal of the UK (via a “property rich company” for example).

From 2015 a filing date of 30 days was introduced for non-residents with some exceptions (for those caught within the Annual Tax on Enveloped Dwellings (ATED) for example).  Companies were excluded from April 2019 and from 2020 this exception has been removed for everyone else and all relevant disposals by non-residents, other than companies, will have to be reported within 30 days.

In contrast, whilst UK residents do not have the filing obligation if no gain arises and certain conditions are met (e.g. perhaps where they are claiming the main residence exemption), this is not the case for non-residents as they must file a return even if no tax liability arises. Your client will have to file a separate return for each disposal unless they happen on the same day.

The payment obligation, set out in Para 6 Schedule 2 of FA 2019, states that payment of CGT will now be due by 30 days from completion for disposals from April 2020 regardless of whether the individual is within self-assessment or not.  For disposals, after April 2019 and before April 2020 it is possible for a non-resident’s payment obligation to be aligned with the self-assessment deadline of 31 January. This will be a noteworthy change and it may inform your client’s thought process.

Paragraph 6, FA 2019 onwards sets out the obligation to make a payment on account of capital gains tax.  The payment is due on the filing date of the 30-day return as referred to above. This might result in taxpayers paying CGT before a tax year has even ended (!) and having to estimate their liability based on their best guess of the tax band that the gain will sit in.

This whole process is further complicated by rules on which losses can be offset against the gain and the somewhat inevitable need to amend these returns to account. There are separate rules pertaining to companies.

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Tax Advice Consultant
0844 892 2470

Pras has over 15 years’ experience in practice having worked for PwC and then Grant Thornton UK LLP immediately prior to joining the team. He is able to advise on a wide range of taxation matters and in particular issues relating to corporation tax and the challenges that owner-managed businesses face.

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