The government announced in the Autumn Statement 2013 that capital gains tax (CGT) on UK residential property would be extended to non-residents from April 2015 and a consultation document was published on 28 March 2014.
A summary of the responses to the consultation document was published last week in “Implementing a CGT charge on non-residents: summary of responses” and a summary of the revised proposals is set out below. Further details and guidance will be published by HMRC, with draft legislation to be included in the Finance Bill 2015.
- CGT will be charged on disposals of UK residential property by non-residents from April 2015.
- The charge will apply to gains arising from that date only, with tax payers having the choice of either rebasing their properties at April 2015, or time apportioning any gains unless the property is already subject to the ATED-related CGT charges that apply to certain property owned in a company.
- CGT will be payable at 18%/28% on non-resident individuals (including those who are partners), depending on their UK income and gains in the year of disposal; at 20% for non-resident companies and 28% for non-resident trusts.
- Non-resident individuals will benefit from an annual exemption.
- Genuine diversity of ownership will be outside the scope, where properties are held by qualifing institutional investors such as pension funds or companies not controlled by 5 or fewer persons.
- All disposals will need to be reported to HMRC with 30 days, with a statement declaring either a gain or a loss on the property.
- Individuals or companies already within self assessment will be able to pay any tax due under normal self assessment rules.
- Anyone who does not already have a record with HMRC will need to make a payment on account within the same 30 day period as the reporting requirement.
- Principal private residence relief (PPR) will continue to be available, but there will be restrictions to the existing rules where more than one residence is owned. If the relief applies, the final 18 months of ownership will also be exempt.
- The changes to the PPR rules will affect both non-residents disposing of a UK residence and UK residents disposing of a non-UK residence.
- From April 2015, a property will only qualify for PPR for a tax year in which the individual spent at least 90 midnights in that property, or in any property owned by him in that same country, in that year, unless he is resident in the same country as the property.
- This means there will be no restriction to PPR claims for UK residents owning UK property only, with the rules remaining as currently drafted.
- Occupation by one spouse/civil partner will count towards the occupation of the other.
- Non-resident companies will benefit from limited indexation allowance and group companies will be able to enter into pooling arrangements for gains and losses on any UK residential property where clear information is provided to support ownership claim as being a group.
- Losses from UK residential property will be ring fenced and will be available only to offset against gains arising from other UK residential property.
- The charge will apply to all UK residential property, unless exempt.
- Exempt property will include certain types of communal accommodation such as halls of residence, care homes, nursing homes and purpose built student accommodation comprising at least 15 cluster flats/bedrooms. Smaller houses converted to house students, or residential property such as accommodation used for independent living outside of a care home will be within the scope of the charge.
- Changes of use over the period of ownership will be time apportioned.
- Disposals of trading stock will continue to be taxed as trading income.