CG73755 - Non-Resident Capital Gains Tax (NRCGT) – Disposals on or after 6 April 2015 to 5 April 2019: Disposals of a UK Residential Property Interest: Disposal of a building that has undergone demolition or conversion to non-residential use

The legislation recognises that a UK residential property interest may cease to exist if the property is demolished and ceases to exist, or if it is converted to a different use and ceases to be suitable for use as a dwelling.

Periods when a building is in the process of demolition or conversion to a non-residential use may potentially be regarded as periods when the building is not suitable for use as a dwelling. Where various conditions are met, a building will be treated as unsuitable for use as a dwelling and therefore outside the non-resident CGT charge on disposal.

Sch B1/para 8 applies where a building or part of a building is (or was formerly) on the land being disposed of and has at any time in the relevant ownership period been suitable for use as a dwelling. It is concerned with cases where a building -

  • has undergone complete or partial demolition or any other works during the relevant ownership period, and
  • has, as a result of the works, either ceased to exist or become unsuitable for use as a dwelling, at any time before the completion of the disposal.

Demolition of a building is considered in Sch B1/para 7. A building is regarded as ceasing to exist when it has been demolished completely to ground level, or to ground level except for a single façade retained as a condition of planning consent.

If certain conditions are met at, or at any time before, the disposal is completed, the building is taken to have been unsuitable for use as a dwelling throughout the part of the ownership period when the works were in progress. The same treatment also applies throughout any period which ends immediately before the work commenced and throughout which the building was not used as a dwelling for reasons connected with the works.

The conditions are that -

  • as a result of the works the building has, at any time before the completion of the disposal, either ceased to exist, or become suitable for use other than as a dwelling; and
  • any planning permission or development consent required for the works, or for any change of use with which they are associated, has been granted, and the works have been carried out in accordance with any such permission or consent.

Sch B1/para 10 explains “planning permission” as having the meaning given by the relevant planning enactment; and “development consent” as development consent under the Planning Act 2008.

The way the special treatment under Sch B1/para 8 is constructed reflects the fact that there may be a period before the work commences when the property is empty. It would not be appropriate to charge non-resident CGT where a person acquired for conversion or demolition a residential property that was vacated prior to and in anticipation of the works, and those works were carried out during the person’s ownership of the property. Where, however, a person owns a property and disposes of it vacant to a developer, the effect of Sch B1/para 8 is that they should remain subject to non-resident CGT up to the point of disposal. The fact that the property is empty in the final few months would not prevent the property meeting the “suitable for use” test and so falling within scope of liability.

If the conditions laid down in the legislation have not been met at the completion of the disposal, the works that have been performed are taken not to have affected the building’s suitability for use as a dwelling (at any time before the disposal). The property would remain within the scope of a charge to non-resident CGT.

The same result applies for any period where the building was undergoing any work, or put to a use, in relation to which planning permission or development consent was required but had not been granted; or where anything was being done in contravention of a condition or requirement attached to a planning permission or development consent relating to the building.

In this connection Sch B1/para 9 provides that the terms of Sch B1/para 8 may apply if any necessary planning permission or building consent has been sought and obtained retrospectively. Where that is the case, it does not matter that planning permission or development consent had not been given at the time the work or change of use took place.