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Capital Gains Tax charges on non-residents – more information released

This information has been prepared by Sykes Anderson Perry Limited as a general guide only and does not constitute advice on any specific matter. We strongly recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not taken as a result of any information or advice given or omitted. The information herein does not constitute investment advice. Always consult an IFA if before taking any investment decision.

The government has published a summary of responses to the consultation on the new extended capital gains tax (CGT) which will apply to non-residents selling UK residential property from April 2015. The paper provides answers to some of the questions about how the charge will apply in practice. These are outlined below:-

  • The new CGT charge will apply only to the gain accrued from April 2015. There will either be rebasing or time apportionment of the whole gain.
  • The gain will need to be reported to HMRC and tax paid within 30 days of the completion of the sale. If the seller is registered for self-assessment, they will be able to make a payment as part of their self-assessment return within the usual self-assessment time scale.

Companies:

  • Companies will be taxed at 20% to mirror UK corporation tax rate. Indexation allowance may be available and companies which are members of the same group will be able to offset gains and losses on disposals of UK residential properties made by different members of the group.
  • The new charge will not apply to large institutional investors (e.g. pension funds investing on behalf of large numbers of individuals, sovereign wealth funds and most financial institutions) and non-resident companies that are not controlled by small groups of individuals (e.g. family companies).
  • The CGT which is charged in connection with the annual charge on enveloped dwellings (ATED-related CGT) will continue to apply. If the gain is within both the new CGT and ATED-related CGT, the ATED-related CGT will prevail.
  • In cases where anti-avoidance legislation attributes gains of non-UK companies to UK resident shareholders (it applies where a non-UK company is owned by a small group of persons), the new CGT charge will take precedence. It will now be the non-resident company which will be responsible to pay the CGT due rather than UK resident shareholders. 

Individuals and trusts:

  • Individuals will be charged at 18 or 28%, depending on total income and gains for the year. The annual exempt amount will be available and it will be possible to offset losses made on UK residential property against gains made on UK residential property.
  • The rate for trustees will be 28%. The annual exempt amount will be half of that available to individuals. This is in line with the current treatment of UK trustees.
  • Main residence relief rules will be amended but only in relation to non-residents disposing of UK residential properties and UK residents disposing of residential properties located outside the UK. Such individuals will only be able to treat a property as their main residence in a tax year if they reside in that property for 90 days in that year.
  • Main residence relief will also be available to trusts if the beneficiary satisfies the 90-day residence requirement. 

We are waiting for the draft legislation for further clarification. 

28 November 2014
David Anderson Solicitor Advocate, Chartered Tax Adviser and barrister (unregistered)