Capital gains tax for individuals who are not resident in the UK

Capital gains tax (CGT) is a tax on the gains on selling an asset that's increased in value. It applies to you if you are a resident of the UK. However, there are cases in which this tax is liable to non-residents on gains on selling an asset in the UK. 

CGT can be a complex topic of tax, and Lawrence Grant can help you understand how you can determine if you need to pay CGT as a non-resident. If so, our expert accountants can help you calculate it.

General rules on when CGT is chargeable

Note that the guidance here applies to those who are domiciled in the UK. We have not covered here what would happen if you are not domiciled in the UK.

UK CGT applies fully if you are a resident in the UK. UK residents may also be liable to CGT on disposals of assets located anywhere around the world, not only to gains on your assets located in the UK. 

Also note if you are temporarily a non-resident in the UK and dispose of an asset in the UK, you may be liable to CGT when you return. This scenario will apply to individuals who plan to move abroad for a few years or get posted overseas for work.

The non-resident individuals in the UK are also liable to pay CGT on disposals of UK property or land. We discuss below how this applies. 

Application of temporary non-residence rules 

There are a number of rules associated with the temporary non-residence status. Generally, you are considered temporarily non-resident in the UK if you: 

• Leave the UK and become a non-resident; and
• Have been resident in the UK at least for four tax years out of the seven tax years before departure; and
• Return to the UK after a period of non-residence lasting five years or less.

You may have many doubts about whether or not you have a period of non-residence of five years or less. If you are facing this issue, please do your research and investigate the rules within the HMRC technical manuals. We are of course able to help you with your queries.

Understanding temporary non-residence rules

As a temporary non-resident, you need to understand the tax laws and what the residence status means. If you are temporarily non-resident, then in the year of your return to the UK any gains or losses realised during your non-residence, including an overseas part of a split year, will be chargeable to CGT in the year of return.

The aim of these temporary non-residence rules is to prevent individuals from leaving the UK to dispose of their assets to avoid paying CGT. You may receive relief if you have already paid foreign taxes on the gains whilst you were living abroad. 

Generally, if you have sold an asset during temporary non-residence which was acquired during that period of temporary non-residence, there is no tax charge. Therefore, only disposals of assets held before leaving the UK are in scope for CGT.

As an example, if you went overseas on 1 August 2021 and you were eligible to split the year from this date, then disposal on, say, 1 October 2021 would not be charged to UK CGT in that year. However, if you returned to the UK within five years (say in 2024/25), the disposal will be treated as arising in the year you returned – assuming it was an asset you held prior to leaving the UK. Similarly, if you make a disposal during 2022/23 and return to the UK in 2024/25, the disposal will be taxed as a gain accruing in 2024/25.

Suppose you have a gain brought within the scope of UK CGT under the temporary non-residence regime, it is deemed to arise in the year in which you resume UK residence. You will also be entitled to the CGT allowance of £12,300 for 2022/23. 

CGT payment process of a non-resident in the UK 

Non-resident CGT (NRCGT) is applied to disposals of UK residential property from 6 April 2015 to 5 April 2019 by individuals who were not resident in the UK for the tax year of disposal. From 6 April 2019, the term 'NRCGT' was dropped, and non-residents were instead brought within the scope of 'normal' CGT on disposals of all UK land and property. In each case, whether or not you were, or are, temporarily non-resident at the time of the disposal is irrelevant. You might therefore need to pay some CGT (or NRCGT, as the case may be) when you dispose of the property and again when you return to the UK.

If you are non-resident and you are liable to CGT on a disposal of UK land or property (or, from 6 April 2015 to 5 April 2019, UK residential property) then you may not need to pay tax on the whole gain. You are however required to report the disposal to HMRC within 60 days for disposals which are complete on or after 27 October 2021 if CGT is due. Prior to this a gain had to be reported within 30 days.

Disposals of UK residential properties from 6 April 2015

Property owned before 6 April 2015 requires the individual to pay tax on that part of the gain which has accrued from 6 April 2015. The gain from which the charge is calculated is worked out in one of three ways: 

1. Calculate the difference between the amount the property is sold for and the value of the same asset on 6 April 2015. You will need the value of the property at 6 April 2015; or

2. Over the whole period of ownership and then time-apportion it and that part of the gain relating to the period from 6 April 2015 would be subject to these provisions; or

1. If you sold the property for less than the initial cost, you can calculate the loss over the entire period of ownership, however the way the loss can be used is restricted.

An election needs to be made if options 2 or 3 are chosen. If the property was your main home at some point, private residence relief may apply to any chargeable gain calculated under options 1 and 2.

If the property was purchased after 6 April 2015, then the whole gain will be chargeable (subject to private residence relief).

Disposals of UK land and property (other than UK residential property) from 6 April 2019

Suppose you owned land or property before 6 April 2019; you will then only be liable to pay the part of the gain accrued from 6 April 2019. The gain from which the charge is calculated is worked in one of two ways:

1. Calculate the difference between the amount the land or property is sold for and the value of the same asset on 6 April 2019. You will need the value of the property at 6 April 2019; or

2. If you sold the property for less than the initial cost, you can calculate the loss over the whole period of ownership, however the way the loss can be used is restricted.

An election needs to be made if option 2 is chosen.

It is not possible to do a straight-line apportionment in this scenario, as is possible in the case where you sell a UK residential property.

If you purchased the property after 6 April 2019, then the whole gain will be chargeable.

If UK land or property is sold which was partly residential in the period 6 April 2015 and 5 April 2019, different rules apply. You will need to refer to HMRC's technical manual for further information on this or we may be able to assist.

A CGT liability may arise on any gain that is not captured above if you are a temporary non-UK resident.

You can read further about CGT for non-residents on disposals of UK land and property on GOV.UK.

Non-residents are also liable to CGT if they are carrying on a trade in the UK and they dispose of UK assets used in that trade. We have not covered these rules here.

Selling a home in the UK while being a non-resident

Selling your home in the UK while being a non-resident is complicated. The first thing to do is to check that you are a non-resident. If you are a UK resident, the process is straightforward because you are then liable to CGT on disposals of your assets located anywhere in the world, not just located in the UK.

Secondly, you need to report the disposal within 60 (previously 30 days) of completion if after 27 October 2021 using HMRC's Report and pay CGT on the UK property service. The tax will be due by the same point if there is any. If you file a Self Assessment tax return for the year, you will need to ensure that the gains are included even if you have already reported them to HMRC using this service.

The gain that is to be reported is calculated in two steps:

1. Calculate the amount of the gain which is in the scope of UK CGT (or NRCGT, for disposals of UK residential property prior to 6 April 2019).
2. To check how much private residence relief, if any, applies to the gain, which is in the scope of UK CGT (or NRCGT, for disposals of UK residential property prior to 6 April 2019). 

Note that the UK annual exempt amount (£12,300 for 2021/22) is available to offset a gain not covered by private residence relief.

If you then return to the UK after a period of temporary non-residence, you will need to consider whether you have a UK CGT liability on the part of the gain which was excluded in Step 1 above.

Taxes in the current residing country 

Every country has its own rules, regulations, and taxes. If you dispose of any assets in another country outside the UK, you may have to pay foreign tax. If you are liable to pay taxes in that country, you might be able to file a claim for double tax relief in the UK. It is better to take advice locally from financial and tax advisors and taxation authorities. 

Conclusion

UK tax law states that non-residents of the UK are liable to pay capital gains tax on the gain they make from selling their land or property in the UK. There are several rules and requirements that they need to fulfill before paying these taxes. The government of the UK also offers them tax relief depending upon status of residence and individual circumstances. 

You can talk to our experts and get a better understanding of capital gains tax for individuals not resident of the UK, as it is a challenging tax area to navigate.