UK: New Capital Gains Tax For Non-UK Residents

Last Updated: 8 January 2015
Article by Kate Davies

Background

In 2013, George Osborne announced in his Autumn Statement that a new capital gains tax (CGT) charge would be introduced from April 2015 in relation to non-UK residents who own UK residential property.  A consultation paper was circulated in March, at the end of last month the Government published a summary of its response to it and legislation is included in the draft Finance Bill published on 10 December 2014.  The new regime is being put in place to counter the perceived unfairness of the current situation and to bring the UK into line with  "many other countries around the world that charge capital gains tax on the basis of where a property is located".

Current regime

The disposal of UK residential property (worth less than £2,000,000) by any non-resident is not subject to CGT.  In fact, the disposal of such property of any value by an individual or trust is not subject to CGT.  However, since 6 April 2013 non-natural persons (such as companies or partnerships where one of the partners is a corporate entity) who dispose of UK residential property worth more than £2,000,000 (on 1 April 2012) are subject to a CGT charge related to the annual tax on enveloped dwellings (ATED).  There are some exemptions from ATED and its related CGT charge, e.g. if the property is let out commercially, being redeveloped or held for charitable purposes  (see our client bulletin entitled "Taxation of high value UK residential property").

Unfairness

The unfairness stems from the fact that UK resident individuals are subject to CGT on the sale of residential property which is not their main home and similarly UK resident companies are also subject to UK corporation tax on the disposal of residential property.  The Government believe this should be the case for non-residents as well.

New CGT charge

When? It will apply to gains arising from 6 April 2015.

What?  It will apply to residential property used or suitable for use as a dwelling.  There is no minimum threshold and qualifying properties of any value will be taxable.  This includes property being constructed/converted for such use but building land will be outside the scope of the charge until construction commences.  This contrasts with a purchase of "off plan" residential property which is treated as the purchase of a completed dwelling and as such chargeable.  The charge will not apply to some communal residential property such as boarding schools or care homes nor purpose built student accommodation.  However, smaller scale properties used to provide student accommodation (such as converted family homes or a portfolio of rental properties) will be caught.

Who?  Individuals, partnerships, trustees and companies (the latter are subject to a "narrowly controlled" test, i.e. where the owners comprise five or fewer individuals or closely controlled companies).

Who is not?  Shareholders, unitholders, pension funds, REITS (real estate investment trusts) and funds (the latter are subject to a "genuine diversity of ownership" test to prevent abuse).

How?

Computation:

  • Taxpayers may choose either of:
    • rebasing to market value as at 6 April 2015(the default position);
    • time apportioning the whole gain over the period of ownership; or
    • computing the gains/losses over the whole period of ownership.
    • Losses are ring-fenced and can only be used to offset gains on residential property although they can be carried forward.
    • Aside from ATED, the new CGT charge takes priority over all other existing anti-avoidance legislation relating to gains made by offshore companies and trust.
    • Concurrent mixed-use properties can benefit from a fair and reasonable apportionment.
    • Pooling arrangements will be available to non-resident companies and groups.

Rate of Tax:

  • Individuals at marginal capital gains tax rates (18% or 28%) with an annual exempt amount (£11,100 fro 2015/16).
  • ATED companies at the rate of ATED CGT (28%) which takes priority.
  • Companies at the rate of corporation tax (20%) with a form of indexation allowance.
  • Trustees at a flat CGT rate of 28% with a restricted 50% annual exempt amount (£5,550 for  2015/16).
  • Partners as if they were individuals with gains apportioned between UK resident and non-resident partners.

PPR:

  • Ability to nominate a property as a principal private residence remains.
  • The person must spend at least 90 midnights in the property in that tax year.
  • If an individual has more than one property in the same jurisdiction, the 90 midnights can comprise nights in any of them in the relevant tax year.
  • Occupation by one spouse will count as occupation by the other.
  • Available to trusts where a beneficiary meets the criteria.
  • These new PPR rules will apply to non-UK and UK resident individuals.

Proposed compliance:

  • Notification by non-resident within 30 days of disposal of the property (including a PPR election as appropriate); this is even the case where a loss arises or the gain is covered by the annual exempt amount.
  • Non-residents who already submit a self-assessment tax return may pay tax within the normal time limits.
  • A "payment on account" regime is to be introduced for non-residents who do not already submit a tax return as they will have to pay and report at the same time, i.e. within 30 days.
  • Amendments to the return permitted within 12 months of the normal filing date.

ACTION

  • Existing property structures: take immediate specialist advice on whether any action should be taken now to mitigate tax.
  • New purchases: take advice prior to purchase to consider which structure is best from the perspective of inheritance tax, stamp duty land tax, income tax, ATED, CGT and asset protection
  • Valuations:  obtain these for all qualifying properties as at 6 April 2015.
  • PPR:  if considering claiming PPR on a disposal, record your day counts very carefully and take advice on the UK's new statutory residence test to avoid becoming resident and thereby triggering wider charges to income tax and capital gains tax in the UK.
  • Other points to consider: co-ownership, tax efficient Wills, trusts, life insurance and mortgages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou Advocates & Legal Consultants
 
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Michael Kyprianou Advocates & Legal Consultants
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions