A new year, a new non-resident capital gains tax

As we enter the new year, it is always useful to reflect on the changes implemented throughout the previous one, and how they have impacted on solicitors’ firms and their clients to date.

There has, of course, been ?an abundance of change throughout 2015; however, ?I would like to take the opportunity to revisit the rules surrounding the new non-resident capital gains tax (NRCGT), which conveyancing solicitors should hopefully be well aware of by now.

As a reminder, the new tax relates to capital gains arising ?on the sale of UK residential property in the period from 6 April 2015 to the disposal date. HMRC requires a NRCGT ?return to be submitted and ?the associated tax paid within ?30 days of the sale of the property, which represents ?a very tight reporting and payment deadline.

It is important to note that ?the return must be submitted ?to HMRC regardless of whether there is any tax to pay or not, ?for example, if there is a loss on disposal.

The form must also be submitted when the taxpayer is reporting the disposal to HMRC via other means, for example, on their personal self-assessment tax return, a company’s corporation tax return, or an annual tax on enveloped dwellings return.

It is commonly accepted that the completion of the NRCGT return will fall to the solicitor when acting for their client in a conveyancing transaction. Some solicitors who do not deal with these types of transactions on a regular basis may well benefit from contacting the client’s accountant for further information on the matter.

Calculation of gains

There are some complex provisions dealing with calculation of gains under these new rules, and for any assets owned prior to April 2015 there will be a choice of three methodologies:

• The default method of calculating the acquisition cost would be by rebasing the property to its market value on 5 April 2015. However, in practice, it ?is unlikely that formal valuations or even reliable estimations would be available to support an accurate market value (especially as time passes); 

• The vendor can elect to apply a straight-line time apportionment method; or

• The vendor can decide neither to make an apportionment nor to ?apply rebasing (e.g. to establish a loss).

Evidently, the information to complete the NRCGT return will be required by the solicitor to accurately calculate the gain, and thus it becomes best practice for this to be received ?in advance of completion. ?The solicitor should therefore request documentation on the following from their client (or their client’s accountant) prior ?to completion:

• Purchase price; 

• Purchase costs (legal and professional fees, etc.);

• Capital expenditure incurred; 

• Details of any reliefs (principle private residence relief, lettings relief, etc.); and

• Selling costs.

Conveyancing solicitors will be aware that penalties are payable if the disposal is reported late, the tax return is submitted late, or the tax payment deadline is missed.

Overall tax position

However, while it stands true that solicitors are avoiding penalties and therefore acting ?in their client’s best interests by ensuring their capital gains tax ?is paid on time, it may be worth taking a step back to consider the client’s overall tax position before submitting the form. 

It is possible for a UK taxpayer to ‘opt’ to defer the payment of the tax due until their ‘normal’ payment due date. For individuals with an existing relationship with HMRC (e.g. under self-assessment), this would be the 31 January following the end of the tax year that the disposal was made in. 

There is clearly a cash flow advantage from deferring the tax. There is also the opportunity for tax planning surrounding the utilisation of other gains and losses incurred in the current or previous tax years, which would mean the payment could differ from that initially made. 

Solicitors should therefore ensure they communicate with their client (and, commonly, the client’s accountant) from the outset of the transaction, to ensure the accurate completion of the NRCGT form itself. It is also important to confirm that the correct ‘option’ is selected in relation to the timing of the tax payment so that the client’s financial position is well managed throughout the ?course of the transaction.

Samantha Mason is a chartered accountant in the business services department at ?Kreston Reeves @KrestonReeves www.krestonreeves.com