Summary and implications

From April 2015, non-UK residents selling UK residential property will be subject to capital gains tax (CGT) on future gains.

  • to residential property only;
  • regardless of value; and
  • to gains made after April 2015. Gains up to April 2015 are expected to be outside the scope of the new tax.

A consultation on how best to introduce the charge will be published early this year and this will outline the detailed proposal.

Current rules

Under current rules, non-UK residents are mainly exempt from a CGT on gains made on UK property. UK resident individuals are subject to a CGT at 18 per cent (basic rate) or 28 per cent (higher rate) but do not pay CGT on their principal private residence.

Under rules introduced last year, non-UK residents and UK residents that hold high-value residential property over £2m through a company may be caught under the Annual Tax on Enveloped Dwellings (ATED) and subject to CGT at the above rates.

New rules

The chancellor announced in the Autumn Statement 2013 that from April 2015, non-UK residents selling UK residential property will be subject to CGT on future gains. Little detail has been published but a consultation on how best to introduce the measure is promised in the first quarter of 2014.

From published information, it seems apparent that the tax is only intended to hit future gains in value, after April 2015. Presumably this means that property values will be rebased at April 2015 for the purposes of calculating further gains, similar to the mechanism introduced for the ATED. Also, it seems the tax is intended to apply to all residential property regardless of value, unlike the ATED which only applies to properties over a £2m threshold.

There has been no indication yet as to what the rate of the CGT on non-UK residents will be when it's introduced. In the Autumn Statement, the chancellor referred to addressing the "unfairness" between the rules applying to UK resident and non-UK resident property owners. Given that the rate of CGT for non-UK residents investing through a company and caught by the ATED is the same rate as for UK resident individuals, it seems likely that the rates for the new charge will also match the rates for UK resident individuals (18 per cent (basic rate) or 28 per cent (higher rate)).

Comment

There is no immediate impact to non-UK resident investors from the Government's announced measure. The change is not being introduced until April 2015 so gains up to April 2015 should be safely outside the scope of new tax. There will also be time, following the imminent consultation, for consideration of the best action to take in advance of the implementation of the tax.

Non-UK residents subject to a local tax equivalent to CGT in their resident state may be able to claim a refund of any UK CGT, under agreements between the UK and the investor's resident state to avoid double taxation. In such cases any new tax may have little or no overall impact to investor's tax liabilities.

We will update with a further briefing when the consultation is released.

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.