41: Key points in relation to the new Non-Resident Capital Gains Tax Charge (‘NRCGT’)
With the new capital gains tax charge on non-resident owners of UK residential property – NRCGT as it has become known – now in force from 6 April 2015, we highlight some of the key points in relation to the charge:
- NRCGT only applies to interests in residential property. It does not apply to non-residential property or property with a communal use, such as boarding schools and nursing homes. Purpose built and converted student accommodation are also excluded from the new charge.
- NRCGT only applies to gains realised on or after 6 April 2015. This means that periods before April 2015 are excluded by rebasing unless the taxpayer elects to time apportion the gain over their period of ownership, or compute the gain (or loss) over the whole period of ownership.
- The rate of NRCGT for individuals and trusts is the same as their UK resident counterparts. This means that the rate of tax for non-resident individuals is 18% or 28% (depending on the amount of taxable UK income the individual has) and 28% for trusts. Non-resident individuals and trusts are also entitled to an annual exempt amount, which, for the current tax year is £11,100 for individuals and £5,550 for trusts.
- The rate of NRCGT for companies is equivalent to the rate of corporation tax payable by UK resident companies. This means non-resident companies pay tax at a rate of 20%. A form of indexation allowance will be available and there is an option for groups of companies to operate a limited form of pooling (to offset gains and losses made on disposals of UK residential properties by different companies in the group).
- Funds (i.e. collective investment schemes and pension funds) are in general not subject to the new charge provided they satisfy a ‘genuine diversity of ownership’ (GDO) test. The GDO test is the same test which exists in relation to Authorised Investment Funds for UK tax purposes, and broadly means that NRCGT does not apply to funds which are widely held (i.e. not used as private investment vehicles).
- Institutional investors are not subject to the NRCGT. A new ‘narrowly controlled company’ test has been introduced to limit the scope of the charge to companies that are the private investment vehicles of individuals, families or small groups of individuals or families.
- ATED-related CGT continues to apply to non-resident companies that are subject to the ATED provisions. ATED-related CGT and NRCGT operate separately. To the extent a gain is ATED-related then ATED-related CGT applies at 28%. Any remaining part of the post 6 April 2015 gain not chargeable to ATED is then subject to the extended CGT charge. More information on ATED-related gains can be accessed here.
- Non-resident property owners of UK residential property may be able to claim main residence relief and not pay NRCGT provided they meet the new qualifying test. For more details please click here.
4 August 2015