Overseas investors selling UK property – what to watch out for?

How overseas investors are taxed on the gain realised on the sale of UK property has changed considerably over recent years.

On many occasions, investors are left with little or no guidance upon concluding the sale of their UK property which can invariably lead to non-compliance with the UK tax laws potentially resulting in hefty penalties.  

Here, we simplify these complex changes to enable the overseas investors to comply with the relevant tax rules in the UK when they sell UK property.  

Individual Non-Resident Owners 

Sale of residential or commercial UK property, whether direct or indirect, will be subject to the Non-Resident Capital Gains Tax (NRCGT) regime which requires the disposal to be reported to HMRC and any tax paid within 60 days of the completion of sale. If the individual selling the property already completes a UK Tax Return they will need to report this gain here in addition to the NRCGT return itself. 

For direct sales; when selling UK residential property the cost of the property is rebased to the property value at 6 April 2015. Capital Gains Tax (CGT) rates of 18% for any gain in their basic rate band and 24% thereafter will then apply.   

For UK commercial property sales, you are able to rebase the property cost to its value at 6 April 2019. CGT rates being 10% for basic rate gains and 20% for any amount taxed thereafter.   

The process of ‘rebasing’ can result in a lower chargeable gain as opposed to using the original acquisition cost of the property. For ‘rebasing’, the investor should procure an open market valuation of the property from a professional valuer which can then be supplied to HMRC if required. This ‘rebasing’ can be disapplied by election if it is more advantageous to use the original acquisition cost of the property in computing the chargeable gain. 

An indirect disposal of UK property can also be subject to UK CGT. If an individual non-resident owner sells shares in a property rich company where they held a 25% (or greater) interest at any time in the two years prior to the disposal they would be subject to CGT on the uplift in the value of their shares in the ‘property rich company’ since 6 April 2019 at the rate of 10% or 20% depending on their other income and gains in the tax year.  

A company is classified as a ‘property rich company’ if at least 75% of the total market value of its qualifying assets are derived directly or indirectly from interests in UK land. Where connected persons have interests in a ‘property rich company’ various tests for a 25% interest are applied by reference to their interests on an aggregated basis. 

Corporate Non-Resident Owners 

Since 6 April 2020, offshore corporate entities that sell UK residential and commercial property, whether direct, indirect, have been subject to UK corporation tax on their gains.  

The same rebasing can apply to the sale of these properties as those owned by individuals, whether the properties themselves or shares in a property rich company. The offshore corporate owner should also procure an open market valuation of the property at the relevant date from a professional valuer.  

Where a corporate entity is already in the Corporation Tax Self Assessment (CTSA) regime, it will need to report the gain on its Corporation Tax Return for the accounting period in which the disposal took place. Normal payment dates would be within nine months and one day following the end of the relevant accounting period. However, if the entity is not already under CTSA, then the gain on the sale of the property would be based on a one-day accounting period with the tax due within 3 months and 14 days from the date of completion of the sale. 

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Offshore corporate owners also need to comply with the requirements of the Register of Overseas Entities (ROE). Non-compliance with the ROE would result in HM Land Registry placing restrictions on the titles of property held by offshore corporates who would then not be able to sell their property until they have complied with the ROE. 

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Key points 

It is highly recommended that Non-Resident Landlords (individuals, trustees and corporates) seek tax advice when they come to selling UK property as non-compliance can result in hefty penalties.