Exposure to UK CGT for non-residents


When faced with a large tax bill and the administrative burden of having to file Tax Returns in two jurisdictions, people always regret not getting professional taxation advice BEFORE they completed the transaction.


Over the past number of years I’ve been contacted by several Irish citizens returning home from the UK where they’ve lived and worked for a number of years.


In the majority of cases, these individuals have had difficulty selling their UK homes and, as a result, may have rented them out for a number of years until a suitable buyer was found.


Their main question they asked was “Do I have an Irish and a UK Capital Gains Tax liability?”


Up until 5th April 2015 the UK domestic law did not impose a Capital Gains Tax liability on non residents which meant if you were Irish resident, for example, then you had no exposure to UK CGT on the sale or disposal of a UK asset.  Because the UK domestic tax law didn’t and couldn’t impose a charge to UK CGT on the disposal of the asset by a non-resident then the Double Taxation Treaty didn’t need to be consulted but the individual would have a CGT liability in his/her place of residence.  Under Section 29(2) Taxes Consolidated Acts 1997, an Irish resident individual only paid Capital Gains Tax in Ireland.


From 5th April 2015 the UK Government amended the taxation of gains made by non-residents disposing of UK residential property.


The New UK Rules

The new CGT charge on non-residents deals with “property used or suitable for use as a dwelling” and will include residential property used for letting purposes.


There are, of course, exclusions for certain types of property in communal use which include boarding schools, nursing homes and certain types of student accommodation.


What differentiates this new charge from the existing ATED-related CGT charge is that all residential property falling within the definition comes within the scope of this new legislation regardless of the value of the property.


The existing ATED-related CGT charge limited the charge to properties where the consideration on sale/disposal exceeded a specified “threshold amount” which for all gains arising on or after 6th April 2015 is £1m.


So who will be affected by this new charge?


The charge will apply to gains made by


  • Individuals
  • Trustees
  • Closely held non-resident companies
  • Funds – to the extent that these gains are not within the ATED-related CGT charge


Who will not be affected by this new charge?


Companies and funds which are not closely-held as well as the majority of institutional investors.


Tax rates (UK)


The tax rates for the new CGT charge on non-residents are the same for UK residents who pay CGT at their marginal rate of Income Tax.


What does that mean?


For taxpayers paying at a Basic Rate, the rate will be 18%


For taxpayers liable at the higher/additional rate, it will be 28%.


For non-residents, the rate will depend on their total UK Income and Gains.


Is there an Annual Exemption?


The annual exempt amount for gains of £11,000 is also be available to non-residents.


Paying and Filing (UK)


In circumstances where the non resident person has an “existing relationship” with HMRC and providing the disposal is not exempt, he/she will be required to file a self-assessment Tax Return following the end of the tax year and make the relevant payment within the usual deadline dates.


A person who does not have an “existing relationship” must submit a Tax Return and make the appropriate tax payment within thirty days.


What about Tax Returns requiring Amendments?


Amendments or changes to these Tax Returns are allowable within the twelve months following the normal filing date for the tax year in which the disposal is made.


In Summary


  • For non-residents disposing of UK residential property, Capital Gains Tax was not an issue up until 6th April 2015.


  • With the introduction of the new legislation, which takes from 6th April 2015, non resident individuals, trustees and/or closely held companies or funds may be exposed to a UK CGT Charge.


  • Non-resident individuals, trustees or closely-held entities can avoid a CGT charge on a disposal of UK residential property where the property qualifies for Principal Private Residence Relief.


  • The new legislation governing Principal Private Residence Relief has prevented some non-residents from claiming the CGT relief.


  • Under this new rule, a residence will not qualify for PPR for a tax year unless (a) the person making the disposal is tax resident in the country where the property is located for that tax year or (b) the person spent at least 90 days in that property in that tax year. (For further information regarding the amendment to PPRR please contact us)


  • Non-residents can defer the payment of the CGT due until the self-assessment filing date provided they register with HMRC.




Do you provide digital services to Japan?


If you’re a provider of digital services to customers in Japan, please be aware that the changes being introduced on 1st October 2015 may affect you.


Old Rules

Under the Consumption Tax Act (Act No. 108 of 1988), a service rendered in Japan is subject to Consumption Tax which is equivalent to VAT (i.e. Value Added Tax).

The criteria for determining whether a service is rendered in or outside Japan varies, depending on the nature of the service.

Under the current rules (i.e. pre October 2015), the tax treatment relating to the provision of e-commerce services, such as e-books, internet delivery of music, etc. is determined by the location of the service provider.

Therefore, such e-commerce services provided by offshore service providers (e.g. companies located in Ireland) to Japanese customers are not subject to Japanese Consumption Tax under the current legislation.


New Rules

From 1st October 2015 there will be new rules. These will be different for (a) Business to Business services and (b) Business to Consumers services.

If, for example, an Irish company is providing digital services directly to Japanese consumers then the Irish company will be obliged to collect Consumption Tax from its customers in Japan and pay this collected Consumption Tax to the NTA or National Tax Agency.

As a result of this amendment, Irish companies/businesses providing digital services to Japanese customers will be required to file consumption tax returns. If this applies to you, it would be advisable to nominate a Tax Agent (i.e. an agent in Japan who will handle all the tax procedures necessary for foreign companies/sole traders/individuals).

For business to business transactions, a reverse-charge mechanism will be introduced. This requires the recipient of the service in Japan to declare both (a) the taxable sales and (b) the related tax due on its consumption tax return. There will be no obligation for the Irish company to file tax returns in Japan under these circumstances.


What should you do?

1. Identify the type of services you provide i.e. is it Business to Business or Business to Consumer services?

2. If it’s Business to Consumer service then you should contact the NTA’s website and register as a Foreign Supplier as soon as possible or alternatively contact a qualified and professional Tax Agent to handle your tax affairs.

3. You should review your terms and conditions to ensure that these changes are reflected.

4. You should review your processing procedures to ensure the mechanisms are in place for the correct collection of consumption tax.


What to keep an eye out for

You should keep an eye out for similar type emails from your Agents stating the following:

“A recent change to Japan Consumption Tax (JCT) regulations will impact your  account.

Beginning on 1st October 2015, you will be responsible for determining and charging JCT for sales to customers in Japan.

The current JCT rate is 8%.

You will also be responsible for remitting and reporting on any JCT amount to the NTA (Japanese National Tax Agency)

This applies to all digital products sold to customers in Japan, even if your business is not located there.”