We welcome Yuliya Shved back for another chapter of her Ask the Expert sessions, today the topic in question is...
How are gains on real estate or other assets owned by a foreign national taxed? And, what are the relevant tax rates?
Historically, when disposing of their UK property non-UK residents, irrespective of their nationality, have not been subject to UK capital gains tax (CGT). However, temporary non-UK resident individuals and those operating via a UK permanent establishment, branch or agency, have been subject to UK CGT.
From 6 April 2015, the UK CGT regime was extended to cover non-UK residents disposing of their UK residential property. This is known as the non-resident capital gains tax (NRCGT) 2015 regime (also known as FA 2015 NRCGT or FA15 NRCGT).
Then the NRCGT 2015 regime was repealed and replaced by a new NRCGT 2019 regime (also known as FA 2019 NRCGT or FA19 NRCGT) which applies to individuals disposing of UK property on or after 6 April 2019. The NRCGT 2019 also covered disposals of non-residential and mixed UK property and indirect disposals of UK land (for example, disposal of shares in a property-rich company). This means that currently, all disposals of interests in UK land by all non-residents (not just those within the scope of CGT) are within the scope of UK CGT.
The most common way for a non-resident to dispose of an asset is to sell it to another person. However, a gift, transfer or exchange also constitutes a disposal for CGT purposes. Note that there are some differences between the NRCGT 2019 and CGT rules. For example, where an option is granted which binds the owner to sell an interest in UK land, the NRCGT 2019 rules treat this as a disposal of that interest. This is in contrast to the general principles of CGT which treats the grant of such an option to be the disposal of the option, not of the underlying asset.
The calculation of the gain or loss on a disposal under the NRCGT 2019 rules depends on the type of an asset, date of its acquisition (before or after 6 April 2019), whether it was chargeable before 6 April 2019 or not (relates to indirect disposals and disposals of non-residential property), etc.
For non-resident individuals making a direct disposal of residential property, the tax rate on any gain is 18% for basic rate taxpayers and 28% for those with income above the basic rate band (similar to the rules that apply to UK resident individuals). For indirect disposals and direct disposals of non-residential property, gains are charged at 10% and 20%, again subject to the income of the non-resident individual. For trustees and for personal representatives of someone who has died, the rate is 28% if it is a direct disposal of residential property and 20% in any other case.