On Friday 28 March, HMRC published the long awaited consultation on the new capital gains tax rules for non-resident owners of UK residential property. The main aim of the new rules – which will apply from April 2015 – is to ensure that non-residents will be subject to UK capital gains tax in comparable way to UK residents; however, the details now released reveal that they go wider than originally anticipated.
The main provisions detailed in the consultation include that:
- The tax will only apply to capital gains arising after April 2015. This would suggest some form or re-basing from that date.
- The rate of tax will be either 18% or 28% for individuals depending on the level of their income and it is intended that the annual exempt amount, currently £10,900, will also be available to non-resident individuals.
- Principal private residence relief will be available to non-resident individuals only in limited circumstances and HMRC are consulting on two possible approaches.
- Unlike the ATED and its associated capital gains charge, there will be no relief for property businesses.
- All non-resident trusts will be subject to CGT in respect of UK residential property
- Non-residents investing in UK residential properties through a UK REIT, or an equivalent foreign REIT, should not be subject to UK CGT. A further extension of the charge will be made in respect of other collective investments schemes such as unit trusts or PAIFS, which do not satisfy a genuine diversity of ownership test.
- A new withholding tax will be applied at the point of sale of the property. It is proposed that the non-resident will have the option to pay the withholding tax or the actual tax due, within 30 days of the sale. It is proposed that solicitors, accountants and others involved in the sale should be responsible for the identification of the sellers as non-resident and the collection of the withholding tax.
Perhaps the most surprising element revealed in the consultation document is that a charge will also apply to non-resident companies going forward. This is surprising given that it follows so swiftly after the introduction of the ATED capital gains tax regime, so that there will shortly be two separate regimes which could potentially apply to a non-resident company holding UK residential property. The rate of the charge on companies has not been decided yet, but it is clear that there will be different rules, exemptions and reliefs across the two regimes.
Overall, the proposals seek to encompass all capital gains made in respect of UK residential property, unless made via a widely held collective investment scheme or REIT; however, a slightly messy interaction with the ATED capital gains regime seems to be in prospect.
The withholding tax element is also something new, and many non-residents will be forced to submit UK tax returns for the first time in order to pay the, presumably, lower amount of the actual capital gains tax due.
Gabelle will be drafting a response to this consultation, which is due to close on 20 June 2014 and if you would like us to make any representation on your behalf, please let us know.
For further information on the taxation of non-residents phone the TaxDesk on 0845 4900 509 and ask for Paul Bramall or Priya Dutta. For further information on the taxation of property or property structures ask for Caroline Fleet.