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Capital Gains Tax on non-UK residents

28 November 2014

Late yesterday afternoon the Government published its response to the consultation on extending Capital Gains Tax (CGT) to non-UK resident owners of UK residential property. 

This is the latest step in a series of significant changes in the last couple of years to the tax treatment of UK residential property.

We now know more or less how the new charge will work:

  • The charge will only apply to residential property ie it will not apply to commercial property.
  • Non-resident individuals, trustees and companies will all be affected.
  • Offshore companies will pay tax at 20% to the extent that the gains are not “ATED-related”. Offshore companies can also benefit from an indexation allowance ie an allowance for inflation.
  • Provided certain conditions are met, institutional investors will not be caught.
  • Individuals will pay tax at 18% or 28% depending on the amount of the gain and the level of their UK income. Depending on their circumstances, they may also be able to claim an annual CGT exemption (currently £11,000).
  • Individuals (and potentially trustees) may be able to claim main residence relief in respect of tax years during which they (or a beneficiary) spent at least 90 nights in the property.
  • The amount of the gain relating to the period before 6 April 2015 will not be liable to the tax.
  • Disposals will need to reported in the person’s tax return. If they do not complete a tax return, they will have to report to HMRC within 30 days of a disposal being completed and pay the tax due.

Overall the proposals are perhaps not as serious as some had feared. 

For example, it was not previously clear whether gains relating to periods before April 2015 might be chargeable. 

And there had been talk of abolishing the ability to elect which of several residences was the main residence. That would have had major implications for many UK residents too.

Some particular points to note:

  • Whereas there are exemptions from ATED and ATED-related gains for companies owning properties which are let or being developed, gains on such properties would be subject to CGT. Nevertheless owning through an offshore company will often be the appropriate solution for such properties. In addition to the exemptions from ATED and ATED-related gains, there will normally also be an exemption from Inheritance Tax (IHT) for those not domiciled in the UK for IHT purposes.
  • With care, non-UK residents who spend 90 nights a year in the property can still sell it free of CGT. This will be a major relief to those who use their UK property as a holiday home. But they will need to take care to ensure that they are not UK resident for general tax purposes. This will depend on their particular circumstances but will include the overall number of days spent in the UK and what other connecting factors they have.
  • Offshore trustees themselves will be subject to the CGT charge (rather than the present system whereby any CGT charge is levied on UK resident settlors or UK resident beneficiaries).
  • Property bought “off plan” will be subject to CGT even if there is a disposal before the property has been built. This means that anyone who has bought a property off plan will need before April 2015 to consider carefully the most appropriate holding structure.
  • There are new rules for UK residents claiming foreign properties as their main residences. They will now have to spend at least 90 nights in the property for a particular tax year to count towards the exempt period.

This article was written by Charles Hutton and Piers Master.

For more information please contact Charles on +44 (0)20 7427 6737 or charles.hutton@crsblaw.com, or contact Piers on +44 (0)20 7203 5096 or piers.master@crsblaw.com