In last year’s Autumn Statement the Government announced its intention to introduce Capital Gains Tax for non-UK residents who dispose of UK residential property.
The Government felt it was unfair to tax a UK resident who sold a UK residential property, which was not their main residence, but not to tax a non-UK resident who sold a UK residential property. Therefore the extension to the Capital Gains Tax legislation was to address this unfairness.
In spring of 2014 the Government issued a consultation document and requested comments, and then on 27 November the Government issued its response.
Who will be within the scope of the new legislation?
The extension to the Capital Gains Tax legislation will affect non-UK resident individuals, non-resident trustees, partners of non-UK resident partnerships and some non-resident companies who dispose of UK residential property.
Disposals by foreign or UK REITs will not be affected by the new legislation, nor will disposals by diversely-held institutional investors (i.e. pension funds) and the Government has introduced a ‘narrowly controlled company test’.
Property used for communal purposes, for example boarding schools, certain student accommodation and nursing homes will not be within the scope of the new legislation.
The Government has confirmed that exemptions introduced for the ATED regime (i.e. property rental business) will not be available under the new legislation.
The Government has confirmed that the rate for companies who dispose of UK residential property will mirror the Corporation Tax rates, currently 20%.
The rates for individuals will mirror the personal Capital Gains Tax rates, currently 18% or 28% depending on the individual’s other UK income and capital gains, and individuals will also have access to the Capital Gains Tax annual exemption. Non-resident individuals may also be able to claim Principal Private Residence Relief (PPR).
Inline with UK trustees, the rate for non-resident trustees will be 28%, with the annual exemption amount being half that available to individuals.
Gains in partnerships will mirror the treatment of UK partnerships, and will be taxed on the partners at the appropriate rate depending on whether the partner is an individual, company or trustee.
Only the gain arising since April 2015 will be within the scope of the new legislation and the chargeable gain will be calculated either by reference to an April 2015 valuation or time-apportioned over the ownership of the property. However, note that a gain also subject to an ATED-related gains tax charge will not be able to be time-apportioned. Taxpayers will also have the option to compute the gain, or loss, over the whole period of ownership.
The gain will need to be reported to HMRC within 30 days of the disposal of the property, and where the owner is not a UK taxpayer the tax payable will also need to be paid within 30 days. Where the individual or company is already within HMRC’s self-assessment regime they will be able to pay the tax as part of their self-assessment instead.
How will the new legislation interact with existing legislation?
Contrary to recent speculation the Government has confirmed that the recently introduced ATED-related gains legislation will remain. There is also the existing anti-avoidance legislation which attributes gains to settlors or beneficiaries of non-resident trusts. Therefore, there are now up to three pieces of legislation to be considered by non-residents disposing of UK residential property.
The Government has confirmed that where a gain would be subject to tax under the different legislation the ATED-related gain will apply first, followed by gains under the new legislation, and then the existing anti-avoidance legislation which attributes gains to settlors or beneficiaries of non-UK resident trusts.
Non-UK residents holding UK residential property will need to consider obtaining property valuations. Several dates may be applicable when computing the tax payable. A company subject to an ATED-related gain will require a valuation as at April 2013, whereas the applicable date for the new legislation will be April 2015. Then, if the gain may also be taxed under the anti-avoidance legislation which attributes gains to non-UK domiciled individuals, a valuation as at April 2008 may also be required.
On a positive note, the Government has confirmed that the introduction of Capital Gains Tax for non-UK residents will not apply to commercial property.
Further information and guidance, along with the draft legislation, will be issued by the Government in due course.
FOR MORE INFORMATION CONTACT:
Tel: +44 (0) 1481 737601
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