UK Capital Gains Tax Charge on Non-Residents


The UK Government’s recent consultation period on the possible introduction of capital gains tax on gains realised by non-UK residents on the sale of UK property, has concluded.

The proposed extension to the CGT regime to non-residents was motivated by the Government’s wish to align the treatment of residents and non-residents to ensure fairness within the tax system.

In the course of the consultation the working groups received representations on modifications to the current International Rules, Corporates, Private Residence Relief (PRR) and Withholding Tax which we consider in summary below:

International Rules:
Relating to offshore companies trusts and temporary non-residents. The main focus of representations was the interaction of the proposed CGT charge with existing legislation and the need to avoid double taxation.

Representations broadly considered that the proposed CGT charge should take precedence over other tax charges, with those other charges being relieved by an exemption rather than a tax credit.

Although not part of the consultation there was discussion of the interaction between the new CGT charge and the related Annual Tax on Enveloped Dwellings (ATED) CGT charge. During the process it was noted that there was a risk of there being a proliferation of CGT regimes resulting in unnecessary complexity that could be avoided by withdrawing the ATED CGT charge and extending the CGT regime.

Rebasing by UK non-residents was also discussed, with the pros and cons of rebasing by valuation or time apportionment being examined.

The basis of the proposed CGT charge would be that non-resident companies should be subject to the CGT charge on the disposal of residential property in the UK. Representations were made that groups of non-resident companies should be able to offset gains and losses within the group, as UK group companies, and that a form of indexation should be available.

Private Residence Relief:
Representations were received to maintain the PRR election, though in a restricted form, and it was suggested that a minimum occupation threshold could be used over the course of the year, which could also be aligned with the present statutory residence test.

Withholding Tax:
A system of ‘payment on account’ is being considered for taxpayers outside of the UK’s self-assessment system. The representations were generally positive as the proposed system should not disturb the conveyancing process. There were discussions on a period in which to allow for the capital gain to be estimated and the payment on account made, the level of the default rate of tax and the necessity for detailed guidance to be provided by HMRC.

We will now wait and see the weight the Government and HMRC attaches to the representations made in the course of the consultation process and whether this is reflected in the draft of this new legislation when it is published later in the year.