Tax considerations for non-UK residents owning a UK property

Non-Resident Capital Gains Tax (NRCGT) 

Since 6 April 2015, the disposal of UK residential property by non-UK residents has been within the scope of NRCGT. This scope was extended from 6 April 2019 to include all UK land and property, or assets deriving their value from UK land and property (e.g. shares in a foreign company that owns UK property).   

Although the above changes may have brought you within the scope of UK capital gains tax, the extent to which your gain is chargeable can be limited.  

For residential property, your chargeable gain can be limited to the increase in value since 6 April 2015, and the gain is taxed at a rate of up to 24%. For gains realised on all other UK land and property and assets deriving their value from UK land and property, the gain is based on the increase in value from 5 April 2019. 

Depending on the type of disposal, HMRC may also allow two other possible methods of calculating the gain, allowing you to choose the method most beneficial to your situation.

The straight-line time-apportionment method  

This option is only available for disposals of residential property. Under the straight-line method the gain or loss is calculated for the entire holding period of the asset. This is then time apportioned so only the proportion relating to the period since 5 April 2015 is subject to charge.

The retrospective method 

Under the retrospective method, the gain or loss is calculated in relation to the original base cost and there is no time apportionment. This method is more beneficial where the property has depreciated in value between the date it was purchased and the rebasing date of 5 April 2015/2019. However, some losses arising under this method are not allowed to be used against any other gains.

Filing implications 

If you are a non-UK resident who sells, or disposes of, UK land or property or an asset deriving its value from UK land and property, then you must submit an online non-resident capital gains tax return and pay any corresponding capital gains tax within 60 days of the disposal. This is the case even if no UK tax is payable on the disposal (e.g. a loss is made).

Inheritance Tax 

In the Budget on 30 October 2024, the Labour government announced the abolition of the domicile regime, to take effect from 6 April 2025, which will be replaced with a residence-based regime. The legislation has not yet been finalised, but under current proposals your foreign assets will be within scope of UK Inheritance Tax once you have been UK resident for 10 of the previous 20 tax years and will remain within scope until you have been non-UK resident for a specified period afterwards.

Previously, and until 6 April 2025, if you were non-UK domiciled, your foreign assets should be outside the scope of UK Inheritance Tax. Historically, it was common tax planning for non-UK domiciled individuals to hold UK residential property through an overseas company or other corporate envelope/entity.

From 6 April 2017, the efficiency of this tax planning has been negated by HMRC. The value of the holding in the overseas company that is attributable to the UK residential property will be subject to UK Inheritance Tax on a taxable event (e.g. on death). Additionally, to prevent people from holding UK residential property through an overseas structure and selling their interest immediately prior to death, there is a ‘two-year lag’. This lag means the sale proceeds, or any assets acquired with the proceeds, remain within the scope of UK Inheritance Tax for two years from the date of sale.  

Annual Tax on Enveloped Dwellings (ATED) 

Companies that hold UK residential property, over a certain value, need to complete annual returns for the ‘annual tax on enveloped dwellings. This is a tax calculated on the value of the UK residential property held within the company and adds a further tax and compliance burden to the previous tax planning strategies. There are several exemptions from the tax charge, but a return needs to be filed to claim the exemption. 

As you can see from the details set out above, there is a lot to consider when UK property is held directly or as part of a structure, even if you are non-UK resident. Our experienced tax professionals can provide expert advice to help you navigate the complexities of UK property taxation. 

If you are planning to dispose of or already have disposed of UK land or property or need advice regarding an overseas structure that holds UK property, please contact us by filling in the form below.  One of our experts will be in touch to assist you.