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Non-residents come within UK capital gains tax net on sale of residential properties

Disposals by non-UK residents of their UK residential property will be subject to UK capital gains tax (“CGT”) from April 2015. The new tax charge was announced in the UK Chancellor’s Autumn statement on 5 December 2013.

So far we have very little detail. However, it appears that the new charge will apply only to future increases in value. Thus, if an individual already owns UK residential property its value will be effectively rebased, presumably to its April 2015 value – although the rebasing date would need to be confirmed - for the purpose of calculating any taxable gain on a future disposal.

It also appears that the new charge will apply regardless of the value of the residential property (by contrast to the charge on ATED-related gains applicable since April 2013 on disposals by non-UK resident companies which only applies to properties worth over £2m).

The announcement does not indicate what rate of CGT will be payable. One possibility is that it will be set at 28%, which is currently the top rate of CGT payable by individuals.

A Government consultation on the new charge is due to be published early in 2014 which should go some way towards clarifying how it is intended to work. Questions which the consultation will need to address include the following:

  • will any reliefs be available, including principal private residence exemption? Will the reliefs available under the ATED rules (for example, for letting on commercial terms or for development) be replicated for purposes of the new charge?
  • will the new charge apply to non-UK resident trusts? (The charge on ATED-related gains does not apply to trustees)
  • will the new charge apply to companies and if so, what would be the interaction with the charge on ATED-related gains? Would it extend to cases where the property is worth under £2m? Thousands of non-UK companies (especially in the BVI) own residential property in London. It will only be possible to advise them on their tax position once we have further clarification on the scope of the new charge.

Once the Government’s consultation paper is published in early 2014 it will be possible for non-UK resident owners of residential property in the UK to begin considering whether they are affected and what steps, if any, they should take. This is likely to require a consideration of other UK taxes besides CGT, including ATED and inheritance tax.

For more information please contact Bart Peerless, Partner

T: +44 (0)20 7203 5274