Non-UK residents historically didn\u2019t pay capital gains tax on disposals of UK situs assets. However, between 2013 and 2019 this position got fundamentally altered, with the UK gradually extending its CGT taxing rights over non-UK residents in respect of specific categories of UK assets.<\/p>\n
It all started with the government targeting offshore company vehicles set up in tax havens that held high-value UK residential properties. From 2023 a new Annual Tax on Enveloped Dwellings (ATED)<\/a> was introduced together with the accompanying ATED-related capital gains tax (CGT) applying to gains arising on disposals of high-value UK residential property held through non-natural persons within the ATED regime.<\/p>\n The Finance Act 2015 introduced the non-resident capital gains tax (NRCGT) regime, which brought disposals of UK residential property by non-UK residents within the scope of CGT from 6 April 2015. The rules applied to both individuals and certain non-resident entities, although the charge was initially limited to residential property (Sch 7, FA 2015<\/a>).<\/p>\n Four years later in 2019 radical changes were again made to the CGT regime for non-residents when disposals of all UK immovable properties<\/strong> (including residential and non-residential properties) were brought within the CGT regime.<\/p>\n The Finance Act 2019 extended the NRCGT regime so that, with effect from 6 April 2019, disposals of all UK land and of interests deriving at least 75% of their value from UK land became chargeable to capital gains tax. The substantive rules are now incorporated into the mainstream capital gains tax regime in the Taxation of Chargeable Gains Act 1992 (s.1A(3) TCGA 1992<\/a>) and the provisions governing disposals by non-residents of UK land and property-rich entities, although certain transitional and commencement provisions remain in Schedule 2 to the Finance Act 2019<\/a>.<\/p>\n Another major change was taxing the gains on the disposal of shares in “property-rich” corporate structures that derived 75% or more of their value from UK real estate. The legislation extended the charge to indirect disposals, including disposals of interests in entities deriving at least 75% of their gross asset value from UK land (commonly referred to as “property-rich” entities), where the non-resident person has a substantial interest in that entity. Generally, substantial interest means holding at least 25% of the interests in the entity (subject to detailed statutory rules).<\/p>\n However, to protect foreign investors against retrospective taxation, these changes incorporated transitional provisions allowing certain assets acquired before the relevant commencement date to be rebased to their market value as of April 2015 (for residential property brought within the NRCGT regime) or April 2019 (for commercial property and indirect interests brought within the extended regime). This ensured that, unless an election was made otherwise, only post-rebasing gains were subject to UK CGT.<\/p>\n The law (s.1A(3) TCGA 1992) as it stands now, therefore, is that non-UK residents only pay CGT on the\u00a0 disposal of three specific types of assets:<\/p>\n The Non-Resident Capital Gains Tax (NRCGT) regime<\/strong><\/p>\n Generally, when it comes to tax computation CGT follows a certain set proforma which is very broadly as follows:<\/p>\n = \u00a0\u00a0 Net disposal proceeds<\/p>\n Less:<\/p>\n =\u00a0\u00a0\u00a0 Capital gain<\/p>\n Less:<\/p>\n =\u00a0 \u00a0 Taxable capital gain<\/p>\n For non-residents, the allowable acquisition cost is not necessarily the actual cost of acquisition paid at the time of acquisition of the asset. There are three distinct methods to calculate the allowable acquisition cost when computing gains subject to NRCGT, starting with the default method<\/strong>. The taxpayer may disapply the default method by making an \u2018election\u2019 which is discussed later in this article.<\/p>\n Residential properties acquired before 06 April 2015<\/strong><\/p>\n It\u2019s important to note that these are transitional provisions. Any residential property acquired after 05 April 2015 will have its actual cost of acquisition deducted from the disposal proceeds to arrive at the gain.<\/p>\n Commercial (non-residential) properties and shares in property rich entities acquired before 06 April 2019<\/strong>\u00a0<\/strong><\/p>\n Following the 2019 overhaul of the legislation, both direct and indirect disposals of UK land, whether involving commercial property or interests in property-rich entities, were brought within the UK CGT regime. The transitional provisions are, however, a bit more restrictive than those applying to a residential property.<\/p>\n However, where disposal relates to indirect interest in UK land (for example shares in a property-rich entity) any loss arising as result of this election will not be an allowable loss.\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 (Para 4(2), Schedule 4AA, TCGA 1992).<\/p>\n Indirect interest in UK land<\/strong><\/p>\n An indirect disposal of UK land occurs when a non-resident sells an interest in an entity (for example shares in a company that holds the land) rather than the land itself, provided two statutory conditions are met simultaneously at disposal (s.1A(3)(c) TCGA 1992).<\/p>\n Where both conditions are met, the gain arising on the disposal of the indirect interest (for example shares in a property-rich entity) is taxable in the UK, and the allowable acquisition cost by default will be the asset\u2019s (for example the share\u2019s) market value as of 05 April 2019. Of course, an election can be made to use historic cost instead, but if this retrospective election results in a loss, that loss will be ignored for tax purposes.<\/p>\n Indirect interest for example is ownership of shares in an entity that derive 75% of their value from UK land. A person will have substantial indirect interest in UK land if, at any time in the period of 2 years ending with the time of the disposal, the person has at least 25% investment in the entity (Para 8(1), Schedule 1A, TCGA 1992<\/a>).<\/p>\n Non-UK companies<\/strong>\u00a0<\/strong><\/p>\n Non-UK resident companies carrying on a UK property business or disposing of UK land have generally been brought within the corporation tax regime, replacing the previous income tax treatment for non-resident companies (s.5(2)(c) CTA 2009<\/a>).\u00a0<\/strong><\/p>\n NRCGT and Principal Private Residence Relief (PPR)<\/strong><\/p>\n PPR relief can be quite complex and what follows is an oversimplified summary of the provisions.<\/p>\n This is a valuable tax relief that applies on the sale of an individual\u2019s main home. The relief exempts all or part of the gain arising on the disposal from tax. Where the whole gain qualifies for relief, no Capital Gains Tax will be payable. PPR applies by exempting the proportion of the gain attributable to periods of actual or deemed occupation. (s.222- s.223 TCGA 1992<\/a>). The period is generally during which the property was the individual\u2019s only or main residence. To qualify for full relief the property must have been occupied as the individual\u2019s home during the period of ownership, and the garden or grounds must generally not exceed 0.50 hectare (unless a larger area is required for the reasonable enjoyment of the property). Where the individual occupied the property for only part of the ownership period, the gain is time-apportioned, and tax is payable only on the proportion attributable to periods that do not qualify for relief.<\/p>\n A non-resident individual may claim PPR relief on the disposal of UK residential property, but only if the statutory conditions are satisfied. In particular, for a tax year to qualify as a period of residence while the individual is non-resident, the day-count condition (s.222A TCGA 1992) must be met. This is normally satisfied where the individual spends at least 90 midnights in the dwelling (or, where more than one UK residence is available, at least 90 midnights across those residences) during the relevant tax year. Where the property qualifies as the individual’s only or main residence, the final nine months of ownership are treated as a period of deemed occupation (s.223 TCGA 1992), even if the individual no longer occupies the property immediately before disposal. In addition there are special provisions (s.222A TCGA 1992)\u00a0 enabling certain non-resident individuals to make or vary a main residence nomination outside the normal nomination rules where the statutory conditions are satisfied.<\/p>\n CGT rates<\/strong>\u00a0<\/strong><\/p>\n Individuals who are entitled to the Annual Exempt Amount (AEA) are exempt from Capital Gains Tax on the first \u00a33,000 of chargeable gains for 2026\u201327 (s.1K TCGA 1992<\/a>).<\/p>\n For disposals of UK residential property made on or after 6 April 2024, the applicable CGT rates are 18%<\/strong> and 24%<\/strong>. Chargeable gains are taxed at 18% to the extent that they fall within the individual’s unused basic rate band after taking account of taxable income for the tax year. Any remaining chargeable gains are taxed at 24%. The availability of the unused basic rate band depends on the individual’s taxable income position. However, not every non-resident individual is entitled to a UK Personal Allowance<\/a>, which can affect the calculation of taxable income and the amount of basic rate band available.<\/p>\n These rates apply to disposals of UK residential property by non-resident individuals under the NRCGT regime. The same rates also apply to disposals of commercial property and indirect interests in UK land by individuals following the later alignment of CGT rates. Different rules apply to companies, which are subject to Corporation Tax rather than Capital Gains Tax.\u00a0<\/strong><\/p>\n Compliance obligations<\/strong><\/p>\n When it comes to taxation UK operates a self-assessment tax system, meaning taxpayers are responsible for calculating their own tax liabilities and notifying HMRC where tax is due. Technically this process kicks off with \u2018notifying HMRC of chargeability\u2019 (s.7 TMA 1970)<\/a>.<\/p>\n Non-resident UK property disposal return (NRCGT return)<\/p>\n A non-UK resident disposing of an interest in UK land (whether a direct disposal of UK land or an indirect disposal of an interest in a property-rich entity) may be required to file a return and make a payment on account of CGT within 60 days of completion of the disposal (Para 3(1), Schedule 2, FA 2019).<\/p>\n However, when an NRCGT return is filed a separate notice under s.7 TMA 1970 by reference to a chargeable gain accruing on a disposal is not required (Para 18(1), Schedule 2, FA 2019) the individual’s remaining tax liability for the tax year is not fully covered by the tax paid on account following the disposal.<\/p>\n However, a return is not required where, at the filing date, there is no amount of Capital Gains Tax that would be payable on account of the individual’s liability for the tax year in respect of the disposal (Para 4, Schedule 2, FA 2019)<\/p>\n Tax payment<\/p>\n The amount payable following the disposal is determined by calculating the amount of tax notionally chargeable<\/strong> in respect of the disposal (Para 7, Sch 2, FA 2019).<\/p>\n The legislation requires a calculation to be made at the time of the disposal to determine the amount of Capital Gains Tax that would be notionally chargeable for the tax year by reference to the information available at that time. This calculation is used solely for the purpose of determining the payment on account<\/strong> arising from the disposal.<\/p>\n In carrying out this calculation, later disposals completed after the disposal date are ignored, as are chargeable gains that are outside the scope of the non-resident property disposal rules. However, allowable losses realised before or on the completion date may be taken into account where permitted.<\/p>\n The amount of tax notionally chargeable gives rise to a payment on account<\/strong> of the individual’s Capital Gains Tax liability for the tax year. The payment on account is due by the filing date of the return, which is generally 60 days from completion<\/strong>. The calculation may also require assumptions or reasonable estimates where necessary, ensuring that an appropriate payment on account is made before the taxpayer’s final annual CGT liability is established. Once this notional figure is established, the notional tax is due and payable by the filing NRCGT return filing date which is within 60 days. The tax paid is treated as tax paid on account (Para 6(2) Sch 2, FA 2019) meaning it is a provisional advance payment toward the individual’s final annual liability for the tax year.<\/p>\n The amount payable within the 60-day period is calculated by reference to a notional CGT computation <\/strong>(Para 7, Sch 2, FA 2019). This calculation determines the amount of tax that is treated as notionally chargeable at the date of disposal for the purposes of establishing the payment on account.<\/p>\n The terms \u2018notionally chargeable\u2019 and \u2018payment on account\u2019 are important. This is because a late payment penalty cannot apply on a notionally chargeable tax paid on account, unless that tax liability becomes final. Therefore, if the individual has no further tax obligations in the UK for the tax year, this notionally chargeable tax becomes final and payable by 31 January following the tax year of disposal. At that point the tax becomes enforceable and will be subject to penalties for non-payment.<\/p>\n Enforcement<\/strong><\/p>\n Properties changing hands in the UK require registration with the Land Registry in the UK and the buyer may have an obligation to pay stamp duty land tax (SDLT) to HMRC on the transaction depending upon the consideration paid and depending on various other factors. These reporting and registration obligations provide HMRC with third-party information regarding UK property transactions. HMRC can use information from sources such as the Land Registry and SDLT returns, together with other compliance data, to identify disposals of UK land and check whether the relevant non-resident property disposal return and payment obligations have been met.<\/p>\n Penalties<\/p>\n Bear in mind that the NRCGT return is due no later than the 60th day following the day of the completion of the disposal. Completion is defined by reference to the completion of the disposal. Where the disposal is made under a contract that is completed by a conveyance, completion<\/strong> takes place when the conveyance takes effect.<\/p>\n Generally property conveyance in England & Wales is executed as a deed and therefore the instrument of conveyance takes effect for this purpose when the deed is delivered (s.1(3)(b) LPA 1989<\/a>). In practical terms, for a typical conveyance of UK land, completion will generally occur when the conveyance is delivered and becomes effective. The 60-day filing and payment deadline is then calculated from the day following completion.<\/p>\n However, for Capital Gains Tax generally, where an asset is disposed of under a contract, the time at which the disposal is made is when an unconditional contract is made (s.28 TCGA 1992). This general rule determines the date of disposal for CGT purposes, but the separate completion-based rules in Schedule 2 FA 2019 determine when the non-resident UK property disposal return and payment on account are due.<\/p>\n Late filing penalty<\/p>\n The penalty regime comprises both late filing penalties and late payment penalties. A fixed late filing penalty of \u00a3100 applies where the non-resident UK property disposal return is not delivered by the statutory filing date, which is generally 60 days beginning with the day after completion of the disposal (Para 3, Schedule 55, FA 2009<\/a>).<\/p>\n The fixed penalty applies even where the return is only one day late.<\/p>\n If the failure to deliver the return continues after the end of three months beginning with the penalty date, HMRC may impose a daily penalty of \u00a310 per day for each day during which the failure continues, up to the date the return is delivered (Para 4(2), Schedule 55, FA 2009). The legislation allows HMRC to charge these daily penalties; however, HMRC have confirmed to professional tax bodies that it does not currently seek to enforce daily penalties for late non-resident UK property disposal returns as a matter of administrative practice.<\/p>\n Where the failure continues after the end of six months beginning with the penalty date, a further penalty may apply. The amount payable is the greater of 5% of the tax liability which would have been shown in the return and \u00a3300 (para 5 Schedule 55 FA 2009).<\/p>\n Where the failure continues beyond 12 months beginning with the penalty date, further penalties may apply. These penalties are more severe where the failure to file is deliberate, with the amount depending on whether the taxpayer has concealed the relevant information and the extent of the taxpayer’s cooperation with HMRC (paras 6\u20137 Schedule 55 FA 2009).<\/p>\n Late payment penalty<\/p>\n Late payment penalties are governed by Schedule 56, FA 2009<\/a>. As noted above, the amount payable following submission of a non-resident UK property disposal return represents a payment on account of the individual’s final Capital Gains Tax liability (para 6(2), Schedule 2 FA 2019). A late payment penalty under Schedule 56 FA 2009 does not apply because it\u2019s the payment on account<\/strong> arising from the non-resident UK property disposal return that is unpaid. The amount is not the individual’s final self-assessment liability for the tax year. The final liability is determined when the individual’s overall tax position for the tax year is established.<\/p>\n For example, for a disposal made in May 2026, the relevant tax year 2026-27 ends on 5 April 2027. The individual’s final balancing payment deadline under Self Assessment is 31 January 2028 (s.59(4) TMA 1970). Late payment consequences in respect of any unpaid balancing liability arise by reference to that final payment deadline.<\/p>\n Interest on late payment<\/p>\n However, HMRC do charge interest on late payment of tax. The applicable rate is set under s.101 Finance Act 2009 and is currently calculated as 4 percentage points above the Bank of England base rate which currently works out to 7.75% per annum. HMRC publish the applicable late payment interest rates on its website<\/a>.<\/p>\n Whilst there are provisions in law for the mitigation of certain penalties, no provision exists in law for mitigating late payment interest (s.101, FA 2009<\/a>). late payment interest under s.101 FA 2009 is a statutory charge and HMRC has no general discretion to mitigate or waive it.<\/p>\n Mitigation of late filing penalties<\/p>\n Late filing penalties arising from a failure to submit a non-resident UK property disposal return on time (Schedule 55 Finance Act 2009). A penalty will not be payable where the taxpayer has a reasonable excuse for the failure, provided that the failure is remedied without unreasonable delay once the reasonable excuse has ended (Para 23 Schedule 55 FA 2009).<\/p>\n Whether a reasonable excuse exists depends on the facts and circumstances of each case. Matters such as serious illness, unexpected technical failures, or circumstances outside the taxpayer’s control may potentially count as reasonable excuse. However, a lack of awareness of the filing obligation or reliance on another person to comply with the obligation will not automatically constitute a reasonable excuse.<\/p>\n Where a late filing penalty has arisen, HMRC also has a discretionary power to reduce the penalty where there are special circumstances (Para 16 Schedule 55 FA 2009). This allows HMRC to reduce a penalty to such extent as it considers appropriate, including reducing it to nil. Special circumstances are not defined exhaustively but generally involve unusual or exceptional circumstances where applying the full penalty would be disproportionate or unfair.<\/p>\n Mitigation of late payment penalties<\/p>\n Late payment penalties incurred within the NRCGT regime may be removed or reduced under the statutory provisions contained in Schedule 56 Finance Act 2009.<\/p>\n Reasonable Excuse (Para 16): HMRC must completely cancel a late payment penalty if you can demonstrate a “reasonable excuse” for the payment delay, provided the issue was remedied without unreasonable delay once the excuse ended. Insufficiency of funds is explicitly excluded unless caused by events outside your control. However, unexpected banking failures, severe delays in HMRC issuing unique tax payment references, or debilitating illness near the 60-day deadline are routinely accepted.<\/p>\n Special Reduction (Para 9): If your circumstances do not strictly fit the rigid criteria of a reasonable excuse, Para 9 grants HMRC broad, discretionary power to mitigate or entirely remit a penalty if they deem there are “special circumstances.” To qualify, the situation must be uncommon, exceptional, or unfair in its impact, such as an unannounced statutory change catch-out or complex multi-jurisdictional estate delays, allowing HMRC to reduce the penalty to any amount they see fit, including zero.<\/p>\n Tax cases<\/p>\n Here are some of the recent cases some of which were won by the taxpayers, whilst some by HMRC:<\/p>\n Where the taxpayer won<\/strong>:<\/p>\n McGreevy v HMRC [2017] UKFTT 690 (TC)<\/a><\/p>\n The Tribunal accepted that the taxpayer\u2019s ignorance of the newly introduced NRCGT regime amounted to a reasonable excuse because there was no deliberate failure to comply with a known obligation..<\/p>\n Saunders v HMRC [2017] UKFTT 765 (TC)<\/a><\/p>\n The Tribunal held that the taxpayer\u2019s lack of awareness of the separate NRCGT filing requirement could amount to a reasonable excuse where, in the circumstances, there was no realistic reason to appreciate that an additional return was required.<\/p>\n Ian Smith v HMRC [2018] UKFTT 0430 (TC)<\/a><\/p>\n The Tribunal accepted that the taxpayer\u2019s reliance on professional advice and genuine understanding of the reporting position provided a reasonable excuse for the late NRCGT return.<\/p>\n Bradshaw v HMRC [2018] UKFTT 368 (TC)<\/a><\/p>\n The Tribunal found that the failure resulted from a genuine misunderstanding of the NRCGT rules rather than a failure to take reasonable care, and therefore accepted the taxpayer\u2019s reasonable excuse argument.<\/p>\n Eric Scowcroft v HMRC [2018] TC6525<\/a><\/p>\n The Tribunal accepted that the taxpayer\u2019s misunderstanding of the NRCGT filing requirement, together with the particular circumstances of the transaction, amounted to a reasonable excuse.<\/p>\n Kirsopp v HMRC [2019] UKFTT 217<\/a><\/p>\n The Tribunal held that the taxpayer\u2019s lack of awareness of the NRCGT obligation was objectively reasonable in the circumstances and was not simply a case of ignoring a known legal requirement<\/p>\n <\/p>\n Where HMRC won<\/p>\n Pidcock v HMRC [2018] UKFTT 376 (TC)<\/a><\/p>\n The Tribunal rejected the taxpayer\u2019s argument that ignorance of the NRCGT rules was a reasonable excuse, finding that the taxpayer had failed to take reasonable steps to identify and comply with the new obligation.<\/p>\n Cobb and another v HMRC [2018] UKFTT 343 (TC)<\/a><\/p>\n The Tribunal held that the taxpayers had not established a reasonable excuse because the circumstances did not prevent them from discovering and complying with the NRCGT filing requirement.<\/p>\n Nugent v HMRC [2018] UKFTT 342 (TC)<\/a><\/p>\n The Tribunal found that the taxpayer\u2019s failure arose from a lack of reasonable care rather than a reasonable excuse, and ignorance of the filing obligation was insufficient on the facts.<\/p>\n Wong v HMRC [2018] UKFTT 286 (TC)<\/a><\/p>\n The Tribunal rejected the taxpayer\u2019s reasonable excuse argument, concluding that the taxpayer should have taken reasonable steps to understand the NRCGT compliance obligations.<\/p>\n\n
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