Capital Gains Tax on disposals of UK property by non-residents


Capital Gains Tax on disposals of UK residential property by non-residents

The UK Government has published a consultation paper on the implementation of a charge to capital gains tax on the disposal of residential property owned by non-residents.

At present, UK non- residents, which includes individuals, companies and trusts, are not subject to UK capital gains tax on the investment gains on residential properties they own. However, in April 2013 the UK Government introduced an Annual Tax on Enveloped Dwellings (‘ATED’). ATED applied to a residential dwellings worth more than £2 million and owned by a non-natural person, ie a corporate or similar entity.  Further, such a property would be subject to CGT on a gain realised on disposal.

The Government is now considering extending the scope of CGT to all residential properties that are owned by non-UK residents. The CGT charge will apply regardless of the value of the property or whether the owner is an individual, corporate entity, partner or trust. It will also apply whether the residential property is rented or used as a second home.

But it should be noted, that the proposed change to the CGT regime will not affect UK non-residents who own commercial property or other UK based assets.

The Government presently proposes that the change will be introduced in early April 2015 and will apply to capital gains arising after that date, at a tax rate of 28%; this is the same rate that applies to UK residents.

An announcement is expected in the near future of the rate of tax under a separate ‘tailored charge’ that will be applicable to non-natural persons.

There will be very limited exemptions to the CGT charge and it will be applied in addition to the existing ATED CGT charge for high value properties.

Principal Private Residence Exemption

Under the existing CGT rules UK resident taxpayers are exempt from any CGT charge for their principal private residence and, where more than one property is owned, the taxpayer is able to elect which property is to be treated as their principal private residence (‘PPR’).

To offer some relief to taxpayers, the Government is considering offering PPR relief to non-UK resident property owners, though this will be subject to certain conditions. The right of election to choose the PPR will be removed, from both resident and non-resident alike, and will be replaced with the PPR being determined either as a question of fact, or as the residence at which the taxpayer has spent the most days in any tax year.

The consultation period is open for three months and draft legislation is expected in December this year.