The government has launched a consultation on its proposals to introduce capital gains tax (CGT) for non-UK residents when they dispose of residential property, which could have significant implications for overseas property investors.
UK residents pay capital gains tax on disposals of any residential property that is not their main home, including on gains made on any residential property owned abroad. However, gains made by a non-resident on UK residential property is either taxed in their country of residence or not taxed at all.
In the consultation document, published on 28 March, Exchequer Secretary David Gauke said: “It is important for the integrity of our tax system that when gains are made from UK residential property, UK tax is paid.
“The government does not believe that it is right that UK residents pay capital gains tax when they sell a home that is not their primary residence, while non-residents do not.
“Similarly, we do not believe that it is right that UK companies are subject to tax on gains that they make from disposals of residential property, whereas non-residents are not.”
The changes are planned to take effect from April 2015 and will apply only to gains arising from that date. Measures on which the government is seeking views in the consultation – which runs until 21 June – include:
- excluding residential property primarily used for communal purposes, such as boarding schools and nursing homes, from the extension to CGT
- including property held by other forms of ownership, such as partnerships, trusts and foreign companies – used where non-residents do not want to own UK residential property directly – in the CGT extension
- making private residence relief – which means that CGT is not payable on gains accrued during the time a property is used as a main home – available to non-residents, in certain circumstances
- allowing non-residents the same annual CGT allowance as UK residents (£11,000 in the financial year 2014-15), with CGT then paid at 18 per cent or 28 per cent on gains, depending on total UK income or gains.
Meanwhile, the Annual Tax on Enveloped Dwellings (ATED) introduced last year and affecting certain non-natural persons, such as companies, which own UK residential property valued at more than £2 million, is to be extended.
From 1 April 2015, a new band will come into effect for properties worth more than £1 million but not more than £2 million, with an annual charge of £7,000. From 1 April 2016 a further new band will come into effect for properties with a value greater than £500,000 but not more than £1 million, with an annual charge of £3,500.
ATED rates for the 2014-15 financial year range from £15,400 for UK residential properties valued at between more than £2 million and £5 million to £143,750 for UK properties with a value of more than £20 million.
At Milsted Langdon, our specialists have a wealth of experience in advising on a wide range of tax matters, including those relating to non-residents. For further information on how we can help, please contact us.