Countdown to CGT for non-residents

By Phil Moss, Tax Partner

In an earlier blog piece, we mentioned the consultation on capital gains for non-UK residents which was announced by the Chancellor in his 2013 Autumn Statement. It’s now clear from the consultation document and feedback that the Government intends to introduce a capital gains tax on residential property gains only for non-UK resident owners. Unlike many other taxing jurisdictions, until recently the UK only imposed tax on capital gains made by UK residents or those trading in the UK. New charges were introduced for high value residential property held by both UK and non-UK companies from April 2013 and these included, for the first time, a capital gains tax charge in relation to affected properties at 28%.

Feedback on the Government’s consultative process was published at the end of July 2014 and shows that there are still some key unresolved issues surrounding the mechanics of payment of the tax by vendors who have no other link with HMRC in the UK. Lawyers in particular have been nervous at the prospect of having to withhold tax from non-resident vendors and a system of payments in advance has been proposed.

Another contentious issue concerns the position of taxpayers with more than one home. As is widely known, UK residents do not pay tax on their main residence and those with more than one property may lodge an election to claim that the relief will apply to one property in preference to another. Many non-UK residents holding UK residential property will have other residences abroad and so will live in their UK property on a part-time basis and, under the current rules, would be able to elect the UK property as their main residence.

The consultative document suggested that to offer the ability to elect the UK property for main residence relief in the same way as has historically been available to UK residents would defeat the object of the new capital gains tax: everyone would simply elect their UK property no matter how infrequently they occupied it. One suggestion was to abolish the main residence election completely, including for UK residents. However, the consultation feedback strongly favoured retention of the main residence election, possibly subject to qualifying criteria such as a minimum level of usage.

There remains an unanswered question concerning the interaction of the new non-residents’ CGT charge and the CGT introduced from April 2013 for high value property in companies (mentioned above). The government accepts that a company vendor should not be liable to both types of CGT but leaving both regimes in operation is likely to create heavy administrative burdens as taxpayers have to work out which regime applies to them. One possibility is that the new non-residents’ charge will supersede the 2013 regime in relation to gains.

Clearly there are lots of issues still to iron out before this new charge is in place. We expect draft legislation with the Autumn Statement but will be monitoring the situation in the period leading up to April 2015 when the new regime is expected to start. 

To discuss any of these points, please contact me.

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