Our April / May edition of Tax eNews highlighted the news that the Government is currently consulting on the extension of CGT to non-residents who dispose of UK sited residential property, with legislation to be introduced with effect from 6 April 2015.

The consultation document issued by the Treasury and HM Revenue & Customs is illuminating as it displays the Government’s thinking on how any CGT charge on non-residents might be implemented.

3 key proposals emerge from the consultation:-

1. The Government’s intention is that the CGT treatment of non-resident taxpayers should be comparable to that of UK resident taxpayers.  They are, therefore, proposing that the annual capital gains exemption (£11,000 in 2014/15) will also be available to non-resident individuals, and that gains in excess of the exemption would be subject to CGT at the 18% and / or 28% rates depending on the non-resident individual’s level of UK source income.

2. The Government is minded to introduce an arrangement whereby CGT would be withheld from the sale proceeds and paid over to HMRC when a non-resident individual sells a UK residential property. The individual would then calculate and report the chargeable gain to HMRC and receive a credit for the withholding tax against the final CGT liability payable.  This approach would not be dissimilar to that in force in other countries

3. The Government is also considering removing the ability for a person to elect which residence is an individual’s main residence for CGT private residence relief purposes.  The Government’s stated aim would be to prevent a non-resident with more than one residence from invariably nominating their UK residence as their main residence in order to benefit from relief from CGT.

Concerns have been expressed that the third and final proposal above will result in UK residents – as well as non-residents – facing higher CGT liabilities on the sale of second homes if the ability to make a main residence election is withdrawn.  Together with the recent reduction in the CGT private residence relief “final period exemption” from 36 months to only 18 months, it would appear that the Government are making concerted steps to increase the CGT take from the sale of residential properties.

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