Overview of the NRCG Framework
The landscape of taxation for non-resident companies has evolved, particularly regarding the sale of UK land. The Non-Resident Capital Gains (NRCG) regime, introduced in April 2019, ensures non-resident companies are taxed on their gains from disposals of UK land. This regime applies to all non-resident companies disposing of UK land or property, whether residential or commercial.
Tax Implications for UK Land Sales
Under the NRCG regime, non-resident companies face distinct tax implications when disposing of UK land. The gains realised from such sales are now subject to UK tax, a notable departure from previous rules where non-resident companies generally escaped UK capital gains tax (CGT) on property disposals. This shift aims to align non-resident companies with the tax treatment of resident entities, albeit with a narrower focus.
While resident companies are taxed on their worldwide income, non-resident companies are taxed solely on the gains from UK land disposals. This targeted approach ensures that overseas entities contribute fairly to the UK’s tax revenue. The amount of tax due is determined by calculating the gain or loss on the property, which involves deducting the acquisition cost and any allowable expenses from the disposal proceeds.
Crucial to this calculation is the accurate valuation of the property, which may necessitate professional appraisal, especially for properties acquired before the NRCG rules took effect in April 2019. Furthermore, any enhancement costs incurred during the ownership period must also be considered, as these can impact the overall CGT liability.
Non-resident companies must be diligent in their tax planning and compliance to navigate these implications effectively. Understanding the nuances of the NRCG regime and seeking professional advice can help non-resident companies manage their tax responsibilities efficiently and avoid any potential pitfalls.
Which disposals are chargeable?
The extended rules for NRCG apply to disposals made on or after 6 April 2019. Under these rules, an NRCGT disposal occurs when there is a direct or indirect disposal of an interest in UK land by a person who is not resident in the UK. This encompasses sales, gifts, transfers, or exchanges of property, as well as events involving the loss or destruction of an asset.
It is crucial for non-resident companies to identify when a disposal falls under the NRCG regime, as failing to do so can result in significant penalties. The definition of disposal is broad, including not only straightforward sales but also more complex transactions like transfers of shares in a company where the value is largely derived from UK land.
Nevertheless, the NRCG rules differ from the standard capital gains provisions in certain respects. For instance, if an option is given that compels the owner to divest an interest in UK land, the NRCG rules consider this a sale of the UK property interest. The date the option is granted is regarded as the date of sale, initiating the compliance requirements explained later in this document. This differs from the usual CGT rules, which see the granting of such an option as the disposal of the option itself, rather than the underlying property. This could pose a challenge for those not fully informed.
Assessing Capital Gains Tax
Determining the capital gains tax liability for non-resident companies requires a methodical approach. The process starts with calculating the gain or loss by subtracting the acquisition cost and any allowable expenses from the disposal proceeds. Accurate property valuation is crucial for this step, which often necessitates professional appraisal to ascertain the market value at both the time of disposal and acquisition, particularly for properties bought before the NRCG rules were implemented in April 2019.
In addition to the acquisition cost, any enhancement costs incurred during the ownership period must be factored in. These could include expenditures on significant improvements or developments that increase the property’s value. Non-resident companies must keep detailed records of these costs, as they directly impact the overall capital gains tax liability.
For non-resident companies, the applicable tax rate remains consistent regardless of the type of property disposed of. Prior to 1 April 2023, the corporation tax rate was 19%, increasing to 25% from that date onwards. However, the small profits rate and marginal relief are exclusive to companies resident in the UK during the relevant accounting period. Exceptions may occur if a treaty’s non-discrimination article applies to a UK permanent establishment of a foreign company
The NRCG regime mandates that non-resident companies report and pay tax on gains from UK land disposals, which means understanding how to accurately calculate these gains is essential. Non-resident companies should also be aware that the valuation process must comply with UK standards and may require documentation to support the declared values.
Finally, seeking professional advice can be advantageous in navigating these intricate requirements, ensuring that all deductions and valuations are correctly applied to minimise tax liabilities and maintain compliance with UK tax laws.
Available Exemptions and Reliefs
The NRCG regime provides for certain exemptions and reliefs that non-resident companies may leverage to reduce their capital gains tax liability. One notable exemption is the Substantial Shareholding Exemption, applicable if the company holds a substantial shareholding in a trading company. For the property to qualify for this exemption, specific criteria must be met, including a minimum holding period and percentage of ownership.
Another potential relief is for properties used for trading purposes. If the property is actively used within the company’s trading activities, it might be eligible for tax relief, thereby lowering the overall capital gains tax burden. Companies must ensure they meet the relevant conditions, which often involve demonstrating the trading nature of their operations and the role of the property within these activities.
Additionally, there are certain reliefs available for properties involved in reorganisations or reconstructions. Under specific circumstances, non-resident companies might be able to defer or mitigate their tax liability during corporate restructures. These reliefs are subject to strict rules and typically require thorough documentation to substantiate the claim.
Understanding these exemptions and reliefs requires careful analysis of the company’s holdings and activities. Non-resident companies should review their property portfolios and consider how each asset might qualify for these tax benefits. Proper planning and documentation are crucial to ensure eligibility and maximise the potential tax savings under the NRCG regime.
Capital losses
Non-resident companies must navigate specific tax rules when disposing of UK land. Under the NRCG regime, gains from such disposals are subject to UK capital gains tax. Importantly, any capital losses arising from these disposals can be utilised similarly to other allowable UK capital losses. This means non-resident companies can offset their capital losses against their own gains and, if relevant conditions are met, the gains of other members within their capital gains group.
Trading losses, on the other hand, may be offset against total profits, including gains, but capital losses cannot be offset against total profits.
Reporting and Compliance Obligations
Non-resident companies must report any chargeable disposal of UK land made on or after 6 April 2019 and pay any tax due under the usual CTSA guidelines. They are obligated to register within three months from when they first incur a charge, which is the date of sale, gifting, or transfer of land ownership, although registration might already exist if the land generates rental revenue.
There are exemptions from the requirement to register if the disposal is an excluded disposal, an exemption applies, or where no chargeable gain or allowable loss arises. Examples provided by HMRC include
- no gain or no loss transfers,
- disposal where no gain arises because sales proceeds equal the acquisition cost
- where the substantial shareholding exemption applies to a disposal. This may be the case where a gain is added to the proceeds of shares on a sale of a subsidiary
- when the disposal is a grant of a lease for no premium
- when the disposal has an ‘appropriate connection’ to a collective investment vehicle, and relief is provided under the terms of the relevant double taxation treaty, although HMRC states that this is a concessionary treatment subject to review.
When a non-resident company disposes of UK land, it must file a corporation tax return for the disposal date only if it has no other UK activities. This single-day accounting period return requires iXBRL-tagged calculations, but not iXBRL-tagged financial statements. If subsequent disposals occur, a separate return is needed for each.
For companies with four or more disposals in a fiscal year, a 12-month accounting period is required, and a full iXBRL-tagged return, including financial statements, must be filed unless specific exceptions apply, such as the absence of a suitable taxonomy. More details can be found in HMRC’s guidance under the ‘After you’ve registered’ section. HMRC advises providing detailed information about the asset type, property address, and any losses or reliefs claimed, either in the tax calculations or in a covering note.
Register of overseas entities
Non-resident companies owning UK land must adhere to specific tax regulations when engaging in property transactions. Under the NRCG regime, gains from the disposal of UK land are subject to UK capital gains tax. Additionally, non-resident companies must register their ‘beneficial owners’ with Companies House through the Register of Overseas Entities (ROE). This registration must be updated annually to maintain compliance.
The registration process does not require details of the specific interests in UK land to be submitted to Companies House. Instead, Companies House issues a registration number to the overseas entity, which must be used in all transactions involving UK land, including buying, selling, transferring, mortgaging, or remortgaging the property. Transactions cannot be processed at HM Land Registry or the Land Register of Scotland without this registration number.
Non-resident companies must ensure they complete the ROE registration accurately and on time to avoid potential delays or penalties in their property dealings. Engaging with professional tax advisors can aid in navigating these requirements efficiently.
How we can help
Expert advice you can trust.
Understanding tax laws can be overwhelming, but with Odiri Tax consultants & Accountants by your side, navigating the complexities of the NRCG framework becomes a breeze. Let us help you assess your tax liabilities accurately, maintain comprehensive records, and implement robust systems to ensure compliance and financial optimisation.
By leveraging our professional expertise, you can confidently navigate the UK’s tax landscape, minimising potential pitfalls, avoiding costly errors, and protecting against penalties and interest charges. Take control of your tax obligations and optimise your financial outcomes today.
Contact Loveth Watson on 01733 808075 for a consultation.
