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This may perhaps be considered a little controversial but as tax advisers we can often be the last professional adviser to be informed that a client has disposed of a UK residential property. This sometimes occurs only at the point the client provides us with their tax return information.

Since 6 April 2015 non-residents disposing of UK sited residential property are obliged to file a return of the gain or loss within 30 days of the completion date.

If the individual is not already within the Self-Assessment tax return regime then as well as filing a return the individual must pay over any tax due to HMRC within that 30 day period.

What are the penalties involved?

£100 for filing the NRCGT return more than 30 days late

£300 for six months late

£300 for 12 months late

Daily penalties were previously levied, however, HMRC have discontinued this practice. 

NRCGT return form (Non-Resident Capital Gains Tax Form)

What is this form?

The form is a 9 page document which is filed by either:

• An individual who is non-resident

• A Trustee or Executor for a non-resident

This can be filed online by the agent with emailed authorisation.

If the above are Self Assessment cases then the box can be ticked to defer payment of the tax until the normal tax payment deadline ie for an individual the 31st January after the end of the tax year.

Computing the Gain

The option is then given to rebase the value of the property as at 6th April 2015 if it has been held since then.

The taxpayer may either then elect to use a straight- line time apportionment as a method of computation or that from the date of ownership or 6th April 2015 is accounted for.

You have the opportunity to apply PPR relief prior to 6th April if you choose not to rebase the gain. Likewise you can also apply PPR relief after the 6th April so there is some flexibility in deciding what the best outcome is for the Taxpayer.

IF a Taxpayer files a return without having previously filed an NRCGT return HMRC are likely to pick up on these and levy penalties however there are likely to be many cases where disposals are simply not reported. Whose responsibility should this be if the gain is not reported? 

Prompting clients to meet the compliance requirements

• In general, Estate Agents and Lawyers do not advise clients on taxation matters including whether they are resident or non-resident under the Statutory Residence Test;

• Sellers will often not be aware of their tax residence status or of their obligations under the NRCGT return regime;

• Sellers may consider themselves UK resident when under the SRT they may not be;

• The sellers may call their homes in France or Spain their holiday home

• The sellers may be able to supply a UK correspondence address

• Estate Agents and Lawyers advising in the run up to a sale of a UK residential property should ideally raise the NRCGT return obligation with their clients and urge them to take appropriate tax advice;

• Estate Agents and Lawyers will usually exclude tax advice from the scope of their engagements with clients.  

• Cases of non-compliance by clients may result and may only come to light some time later, if at all;

• All professionals involved with the sale of UK residential property should work closely together and ensure that the client in question takes formal tax advice to ensure that they meet their obligations under the legislation;

According to the ICAEW, many individuals have already fallen foul of the tight timeframes imposed by the new rules.  Although recent Tribunal cases of McGreevy and Saunders went in favour of the taxpayer, on the basis that the information to file a return was not “well within the public domain”, these cases cannot be relied upon forever.

I talked to one of my professional peers within a local independent Estate Agency to ask if they were aware of the rules and gain their opinion on their own role in the administration of this piece of government legislation. We discussed how practical it is to advise all non-resident clients who own UK property that this is now the requirement and that the Self- Assessment Tax return is no longer the method of reporting.

Is there any solution?

The burden is wholly on the taxpayer to comply with the requirements of the legislation.  One wonders if an automatic notification could be incorporated within the SDLT return that lawyers file following completion that then prompts HMRC to send a notification to the individual to file a NRCGT return or at least seek advice.

In our role as tax advisers we need to increase awareness of the NRCGT return regime with our professional counterparts such as Estate Agents and Solicitors, so that this legislation is understood and complied with by professionals and clients alike.

Ultimately it is the client’s responsibility to comply with the legislation and make the return within the tight deadline but equally professional advisors involved in the sale of residential property need to highlight the legislation to them to in order to meet their compliance requirements.

In the November budget it was announced that the sale of commercial property by non-residents will be brought within the scope of UK CGT and so the compliance burden will only increase in this area.

We need to ensure that non-resident clients do not “fall down a hole” between the various professionals advising on a UK property sale and the client takes proper advice on their obligations.

 

For any advice on this please do not hesitate to contact me.