Messy and far from simple – Gabelle responds to HMRC’s consultation on the new capital gains rules for non-residents

Gabelle has today responded to HMRC’s consultation on the new capital gains rules that will apply from April 2015 for the non-resident owners of UK residential property. Gabelle has highlighted that the proposed rules are far from simple and do not minimise complexity, despite this being one of supposed objectives of the new rules.

In particular, there is a very messy interaction between the proposed new charge and the ATED capital gains regime. In some cases, the gain on the same asset will be taxed partially within the ATED regime and partially within the new charge!

Consider the following example: An overseas company purchased a residential property for £2m in April 2011 and the property was rented out from April 2011 to April 2016.  From April 2016, the directors seek new tenants but are unable to find any, and in April 2017 a non-qualifying individual occupies the property until it is sold by the company in April 2018. Based on the current legislation, the gain attributable to the period April 2013-2016 should fall within the ATED exemptions, but the gain attributable to period from April 2016-April 2018 would be liable to the ATED capital gains charge (i.e. taking into account the look-back provisions that can apply on occupation by a non-qualifying individual). On the implementation of the new proposed legislation, the period from April 2015-April 2016 will now also fall within the scope of the new capital gains charge.

Undertaking the capital gains calculation necessary will be confusing at the very least, particularly as it is currently proposed that the two regimes will have differing rates, different rebasing methods and different filing requirements!

Also within the consultation, HMRC are looking at removing the ability for all tax payers to enter into a Principal Private Residence (‘PPR’) election. This election has historically allowed UK taxpayers to choose which of a number of residents should be their PPR, and removing it ignores the certainty wanted by taxpayers on their PPR position, and ignores the way that people live and split their time between properties.

For full details of Gabelle’s consultation or 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.