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April 17, 2014

Implementing a Capital Gains Tax Charge on Non Residents - Between the lines

A consultation paper was released on 28 March 2014 by HM Treasury entitled "Capital Gains Tax Charge on Non Residents".  The introduction of a charge on Non-residents in relation to residential accommodation was first mentioned in the 2013 Autumn Statement.

We have summarised some key points and related commentary about the changes, which are proposals at present:-

  • A Capital Gains Tax charge will apply to non-residents who realise a capital gain by disposing of a UK residential property from April 2015 onwards
  • The charge will apply to most types of residential property, with no minimum threshold on value and whether or not the property is let
  • Most "non-natural" non-residents will be subject to the charge; although the following 3 fund types will be exempt:- i) Pension funds ii) Overseas funds that are equivalent to UK REITS iii) Overseas funds that meet a General Diversity of Ownership test (GDO)
  • The rate of CGT for individuals will be established in a similar way to UK residents and therefore charged at either 18% or 28%
  • Non-resident individuals will benefit from the annual capital gains tax exemption
  • The rate of tax for non-resident "Non-naturals" is yet to be announced
  • Principle residence relief will be available to non-residents - although this may involve a change to the current system of taxpayers being able to elect their main residence - such a change is likely to impact both non resident and UK resident taxpayers.

Key Issues

On the announcement of the new charge in late 2013 there was speculation as to whether non-residents "base cost" for CGT would be uplifted to the value as at April 2015.  No such re-basing is mentioned in the document and therefore this is thought to be unlikely, with gains calculated to non-residents in the same way as residents.

There is a withholding tax mechanism planned for the charge, so tax will be collected at source from the proceeds of a sale by a non-resident.  Such a withholding tax may have to be policed by solicitors or accountants, so this could be controversial with such professionals, as it would mean more paperwork and additional obligations and responsibilities for them.

The proposed application of the Private Residence Relief rules is also of interest, potentially, to UK tax payers.  because it is thought that a proposed change to remove the ability to elect for a property to be a taxpayer's principle residence will be made for all individuals, whether they are UK resident or not.  The test as which property is actually the principle residence could be made more definitive also.

Responses to the consultation paper are requested before 20 June 2014.

Contact us today to discuss your tax requirements.
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