The Government has recently made a number of important announcements with regard to the taxation of residential property in the United Kingdom.Nick Barnes, Head of Research
The Government finally published the details of this new tax on non-resident owners of UK residential property shortly before the Autumn Statement. Final legislation will be included in the Finance Bill 2015 which will provide further details about how this CGT charge will operate when it comes into force in April 2015.
What is the current situation?
Currently, non-resident owners of UK residential property are not liable to capital gains tax in the UK unless the property is within the ATED system (see our separate note on ATED).
What are the proposed changes?
The Government has confirmed that, with effect from 6th April 2015, non-resident owners of UK residential property (including property that is in the process of being constructed or adapted for
such use) will be liable to capital gains tax in the UK upon disposal of their properties. Disposals of rights to acquire a UK residential property ‘off-plan’ (i.e. before it has been constructed) will be
treated in the same way as if it were a disposal of an interest in a completed property.
Non-resident partnerships and tax transparent non-resident trusts will likewise be treated in the same way as their resident equivalents: any chargeable gain on the disposal of property by the partnership will result in a CGT charge on each partner individually, subject to any PPR relief which may be available.
The proposed rates of tax are as follows:
–– Companies: the rate will mirror the standard UK corporate tax rate (currently 20%) unless the company is subject to the Annual Tax on Enveloped Dwellings (ATED) in which case the rate will remain at 28%. To prevent potential double taxation, where part of the gain could be subject to both ATED-related CGT and the new CGT charge, the ATED-related CGT charge will take precedence.
–– Individuals: the rate of tax for non-resident individuals will be the same as the CGT rates for UK individuals, currently 18% or 28% depending on the person’s total UK income and chargeable gains for the tax year. Non-resident individuals will have access to the annual exempt amount of taxable gains, in line with UK residents, and may be eligible for PPR.
–– Trustees: non-resident trustees will be taxed at a rate of 28%. The annual exempt amount is normally half that available to individuals but can be restricted if the same person is a settler for multiple trusts.
The Government has confirmed that the tax will not be retrospectively applied and that only gains made after April 2015 will be taxed. The government will allow either rebasing to 5 April 2015 or a time-apportionment of the gain over the whole period of ownership. Individuals and companies will need to report to HMRC within 30 days of the date of completion that a disposal has been made and make a payment of the tax that is due. Where a person has an existing relationship with HMRC, they will be able to make a payment as part of their self-assessment return instead. There will be no requirement for purchasers to withhold tax or check the residence status of vendors.
What are the potential implications for you?
You may be liable to pay the tax if you own UK residential property and you fall within any of the following categories:
–– non-UK resident individuals
–– non-UK resident trusts
–– personal representatives of a deceased person who was non-UK resident
–– non-UK resident companies controlled by five or fewer persons, except where the company itself, or at least one of the controlling persons, is a ‘qualifying institutional investor’.
–– some UK resident individuals disposing of properties overseas, or who spend part of a tax year abroad.
The most obvious implication is that non-residents (including expatriate Britons) will face an additional tax charge when selling UK residential property after 5th April 2015. Three factors will be critical in determining how much tax will be liable:
1. whether you are entitled to any relief or exemption
2. the value of the property as at 5th April 2015
3. the price achieved on sale of the property
If CGT is liable, then a valuation of the property as at 5th April 2015 is vital. There is no requirement in the legislation as it stands at present for a formal valuation, however if HMRC were to challenge the value then clearly the more robust the valuation the stronger your case would be.
We are grateful to PWC for their assistance in putting this note together. For further information please contact:
John Woolley, Chestertons: +44 (0) 20 3040 8513 / firstname.lastname@example.org
Rob Haigh, Chestertons: +44 (0) 20 3040 8235 / email@example.com
Richard Davies, Chestertons: +44 (0) 20 3040 8244 / firstname.lastname@example.org
The contents of this report are intended for the purpose of general information and should not be relied upon as the basis for decision taking on the part of the reader. We would strongly recommend that you speak with a qualified tax specialist who would be able to advise on specific points of detail and appropriate action. Although every effort has been made to ensure the accuracy of the information contained within this note at the time of writing, no liability is accepted by Chesterton Global for any loss or damage resulting from its use. Reproduction of this report in whole or in part is not permitted without the prior written approval of Chesterton Global. February 2015.