I purchased a one-bed flat in the UK in 2014 for £142,730 and sold it in mid-April 2023 for £182,025. I jointly own another property in the Netherlands. As I'm permanently based in the Netherlands (where I pay tax), and had been granted non-dom status in the UK, I wasn't sure if I needed to pay capital gains tax in the UK.
I assumed that if I did, it would be part of my 2023 tax filing. I file an online UK tax report every year, saying that I have non-dom status – as it happens the amount I got in rent always fell below the threshold even if I did have to pay tax. All my earnings including the rent from the flat are declared in my annual Netherlands tax report.
My question is do I need to pay UK capital gains tax, and if I do, and am therefore late paying it, and what are the consequences of this?
BC, via email
Jason Porter, business development director at Blevins Franks, says:
You are required to declare the disposal to HMRC, including the capital gains calculation in your UK tax return for the relevant year, and pay any UK capital gains tax (CGT) due. The date of disposal for UK tax purposes is the date you entered into an unconditional contract, so for property, this is the date of exchange of contracts, not the date of completion. If the date of exchange was before mid-April 2023, it is important to establish if this was on or before 5 April 2023, the final day of the 2022-23 tax year. After this date, the disposal falls into the 2023-24 tax year. This will determine which tax return the capital gains calculation should have been included with, and when it should have been submitted. If it falls into the earlier year, the deadline would have been 31 January 2024. If you have already submitted a UK tax return for the year, you may wish to submit an amended version, including the capital gains calculation on the property sale. In addition, as it is a sale of UK residential property, you should have also submitted the calculation, a 60-day property disposal form, and any tax due to HMRC within 60 days of the date of completion.
In terms of both the rental income and the capital gain on disposal of the property, your non-domicile status in the UK is not a determining factor in deciding whether either needs to be declared on your UK tax return – the rental income (and allowable expenses) should have also been declared. You have stated that the amount you received in rent “always fell below the threshold even if I did have to pay tax”, which I presume means the rental income is less than the £12,570 of UK personal allowances you are entitled to as an EEA resident. If there was any net rental income over and above this, it would be taxable at 20 per cent, up to £50,270 of income.
The fact the rent is declared in your annual Netherlands tax report does not change the UK position, which is determined by the double tax treaty between the UK and the Netherlands. You may also need to revise previous years' UK tax returns to declare the rental income and expenses correctly. If the net total is always less than the personal allowance, no additional tax should be due.
The UK changed the rules in connection with disposals of UK residential property owned by non-residents from 5 April 2015. Prior to this date, the disposal would not have been taxable in the UK. Now, any disposal needs to be declared, and potentially any tax should have been paid within 60 days of the completion date. As many people owned their property for many years before the imposition of these new rules, you are able to elect to “rebase” the purchase price of the property to the 5 April 2015 market value, which might reduce the gain.
There can also be additional relief (but also added complication in the calculation) if you had occupied the property as your main home at some point. If a property was the main home throughout, then no capital gains tax should be due, but if there are periods of occupation and non-occupation, then the gain may be apportioned accordingly, with a liability effectively arising on the non-occupied proportion (although the last nine months of ownership are normally always exempt).
In calculating the initial gain, you are able to deduct expenses such as legal fees, loan arrangement costs, estate agent fees, and so on.
In your case, it may be best to first calculate the chargeable gain according to the various bases of calculation available before electing the most beneficial for you. There is also a capital gains annual allowance of £12,300 in 2022-23 which can be set off against the gain. This falls to £6,000 in 2023-24.
The amount of CGT payable depends upon whether there is any unused basic-rate tax band (the amount available will depend on how much any net rental income exceeded the personal allowances in the year concerned). In this instance, up to £50,270 of gain after the annual allowance would be charged at 18 per cent, and anything over this amount at 28 per cent.
UK capital gains tax on the disposal of UK real estate is payable within 60 days of the completion date of sale. If the payment of the CGT and the 60-day return is filed after this deadline, penalties and interest will be chargeable. There is a penalty of £100 for late filing, and further penalties of £300 or 5 per cent of any tax due, for every further six months that passes. HMRC has the discretion to charge daily penalties of £10 per day up to a maximum of 90 days if the return is more than three months late. Interest at HMRC’s prevailing rate(s) will also be charged where the tax is not paid by the 60-day deadline.
