In April 2015, the scope of Capital Gains Tax for non-residents was widened to include a residential property held as an investment. Before that change, a non-resident individual’s exposure to CGT was limited to disposals of assets connected with a trade that he or she was carrying on in the UK. With effect from April 2019, CGT for non-residents has been expanded to include disposal of commercial property investments and disposal of properties owned indirectly (for example by being held in a corporate wrapper).


Ron’s position illustrates some matters that need to be considered when assessing the CGT payable by a non-resident. He ceased to be UK resident at the start of 2019/20 when he began to spend much more time in his home overseas as part of his plan to edge towards retirement. He is coming in to discuss his plans to dispose of his assets in the UK. He is quite pleased that capital losses that he claimed in the past are now going to be helpful in reducing his CGT bill.


In additional to a portfolio of rental properties in his own name (some residential properties and a couple of shops), Ron has these investments:

  1. A 20% shareholding in a company that owns a portfolio of buy-to-let houses. 60% of the company is owned by Ron’s brother and the remaining 20% is owned by a friend.
  2. A company that owns a hotel building. The hotel trade is run by another company owned by Ron’s daughter.
  3. Ron owns the entirety of a company which has a mixed portfolio of residential and commercial properties that it lets out.
  4. He also has a company that is a property developer.

Some of Ron’s losses were claimed on the disposal of some personal investments in properties; they were mostly in the UK but one of them was a flat in Dublin. He also has significant capital losses on shares he had bought in a company which ran a restaurant trade that failed.

The gain on a property held personally by Ron will be rebased to the market value it had when it became chargeable to CGT for non-residents providing that he owned it then. Thus, a residential property is rebased to its value of April 2015; a commercial property or a shareholding that is an indirect holding of property is rebased to its value of April 2019. Alternatively, Ron may elect to use the original cost. A third approach (for a direct holding of residential property only) would be to tax a time-apportioned slice of the capital gain for the part of the period of ownership since 2015.

When Ron sheds a property he holds personally, that will be taxable as a “direct disposal of UK land” but his other investments are company shareholdings. When Ron disposes of shares, he will be chargeable to CGT only if at least 75% of their value derives from the company’s ownership of UK land and Ron’s indirect interest in the property is substantial, as determined under the rules of Schedule 1A TCGA 1992. Broadly, that schedule requires that Ron has at least a 25% stake in the company (but he might have other’s shareholdings attributed to him) and the properties must not be in use in a ‘qualifying trade’.

The first shareholding clearly derives its value from investment in UK properties. We might expect Ron to satisfy the requirement to be treated as having at least 25% of the company given that his brother owns a further 60%. However, the legislation which attributes the rights of other shareholders to Ron (para 10 Sch. 1A) captures the rights of spouses, ancestors and descendants but not siblings. Hence, this shareholding does not amount to a substantial interest and the gain on their disposal would not be chargeable to CGT.

Shares in the company that owns the hotel building are not likely to fall within the CGT net because of the exception made for assets used in a qualifying trade. The trade being carried on will qualify if carried on by a connected person. There is no specific definition of ‘connected’ for this purpose so S.286 TCGA 1992 applies. However, Ron needs to confirm that his daughter’s company has been running it hotel business in that property for at least 12 months and that there are no plans to cease the trade (para 5(3) Sch. 1A).

The third company is clearly a property investor and satisfies the conditions for gains on share disposals to be subject to CGT. Since we have an interest in properties through a company “wrapper”, any rebasing will be to the value that the shares had at April 2019 even though the company might have residential properties that it acquired long before April 2015.

There is a possibility that shares in the property developer company would escape CGT on disposal if their value derives from land and buildings that are stock of the company’s trade. HMRC’s view is that it is more likely that shares in a property developer would not be excepted because “it is unlikely that the ‘qualifying trade’ will continue and that the land being used in the ‘qualifying trade’ at the point of disposal would continue to be used in that ‘qualifying trade’.” (CG73946) The assumption made by HMRC is likely to be correct but it is worth checking with Ron the circumstances in which he intends to dispose of the shares. For example, if he sells to a senior manager in the company who intends to finish off existing developments and to carry on new property developments for the foreseeable future then the qualifying trade exception will apply. However, even then this disposal might not escape UK tax because of the Transactions in Land anti-avoidance of Part 9A ITA 2007 (BIM60580); if it does apply to this disposal, Ron will be treated as if he himself has a trade of dealing in or developing UK land! A careful consideration of all of the facts around the business of the company, Ron’s involvement in it and the circumstances of his disposal of his shares is required.

Having established which gains are subject to CGT, we need to consider which of Ron’s losses are available to relieve them. When we are seeking to use losses to relieve gains of a non-resident that are subject to CGT, Section 1E TCGA 1992 applies. The gist of Section 1E is to ask a hypothetical question: suppose the disposal at loss had been a gain instead; would that gain have been taxable on Ron as a non-resident? Only if the answer is “yes” will the losses relieve his gains now as a non-resident. Therefore, the loss on the flat in Dublin cannot be used because if he had made a gain on disposing of it when he was non-resident, that gain would not have been taxable. The loss on the shares in the failed restaurant business merits further investigation. Did the company own or lease its premises? Were the shares sold while the company was still trading or did the loss accrue on liquidation after the trade had been wound up?



Information from Julian Payne, a Tax Advisor at Croner-i Taxwise.

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