AS 2013: CGT for non-resident property owners hits expats

As trailed in the run-up to the Autumn Statement, the Chancellor confirmed plans to charge capital gains tax (CGT) on non-residents who sell residential property in the UK.

Particularly in central London, where prices have soared over the recession, properties are often purchased purely as an investment vehicle, and are never lived in.

From April 2015, the government will introduce capital gains tax on future gains made by non-residents disposing of UK residential property. A consultation on how best to introduce the new CGT charge will be published in early 2014.

There will also be a reduction in the CGT private residence relief final period exemption from 36 months to 18 months to reduce the incentive for those with multiple homes to exploit the rules.

'The introduction of this charge follows the introduction of a similar charge for 'non-natural persons', in respect of UK residential property which has been subject to ATED, which came into force on 6 April 2013. It also brings the UK capital gains tax regime more in line with most other European countries,' says CCH tax specialist Meg Wilson.

'Assuming the rules for this new charge follow those for ATED-related capital gains, it is anticipated that where a residential property is purchased before 6 April 2015 but disposed of after that date, the charge to capital gains tax will apply only to that part of the gain that accrues on or after 6 April 2015.'

A consultation is planned for early 2014.

There are a number of issues which need to be clarified in the consultation, added Wilson.

These include whether the charge will apply to all residential properties or just those worth more than a certain amount, say £2m; whether private residence relief will be available to the non-UK resident individuals; and how the charge to tax will be recorded and paid (as most non-UK resident individuals will not be within self assessment).

'The charge will affect disposals of all UK residential property by non-resident individuals and non-resident corporates where the property is worth less than £2m and will apply from 6 April 2015,' says Patricia Mock, a tax director in the private client services practice at Deloitte.

'It is expected to raise £345m by 2018/19. The statement referred to future gains being taxed, so it seems likely the gain will be based on growth in value from the 6 April 2015 start date, as was the case when the charge for companies was introduced.

'It is not clear how the charge will be enforced and it is possible a withholding will be required by purchasers, in line with the position in the US. There will be numerous complexities to be considered, not least the interaction with already existing beneficiary charges in respect of trusts.'

The timing of the introduction of the new regime will allow property owners to plan ahead.

However, the new rules are wide reaching. Kersten Muller, real estate partner at Grant Thornton UK LLP, warned: 'It is important to bear in mind that this is not just a tax on rich foreign investors but will hit all non-residents including people who retire abroad and keep their UK property to rent it out.

'What will be interesting to see is how this tax will be enforced and the money collected? In the US, which has a similar system in place already, it's the purchaser who has to pay part of the purchase price to the tax authorities and then the vendor has to reclaim if appropriate.'

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