Unstable home? CGT for non-residents update…

It has been interesting to keep abreast of various responses to the proposed capital gains tax charge on non-UK residents over recent weeks.

To recap, from April 2015 it is proposed than non-UK resident ‘persons’ (including foreign companies, partnerships, trusts etc.) will be subject to UK tax on gains from the sale of UK homes, whether these are for personal use or rented out. The published aim of the policy is to achieve fairness, by aligning the tax treatment of resident and non-resident owners.

Thankfully, a consultation is ongoing as to how this charge should apply, and it is fair to say that a good deal of uncertainty prevails. Whatever the outcome, it seems inevitable that it will add to the complexity of the tax system.

Both the Law Society and the Chartered Institute of Taxation have expressed concerns over how such a charge might be implemented and have highlighted the some of the possible complexities. In particular, the suggested changes to main residence relief and how any ‘rebasing’ of properties might be achieved has been questioned.

Given the recent increases in UK property prices, particularly in London and the South East, a straightforward rebasing of property values should mean that those who have benefitted from significant unrealised gains to date would get a good deal of protection. The government may be wise to this of course, and a time-apportioned approach may be adopted instead. This would have its attraction in terms of eliminating the need for (contentious!) valuations, however.

There have also been calls for the changes to be deferred until to allow time for further consultation and to iron out some of the likely practical difficulties. However, the strong likelihood remains that the charge will be introduced as planned with effect from April 2015.

We have recently advised several clients who stand to be affected, and selling or gifting property interests may prove attractive in certain cases. The UK inheritance tax exposure for those holding UK property directly is also important, and may make transfers more attractive. For those holding properties through existing offshore structures, the Annual Tax on Enveloped Dwellings (‘ATED’) regime also requires careful consideration.

We would encourage those holding UK property either personally as a non-resident, or via an offshore structure, to review their position and consider what options might be available. Please contact us to speak to one of our advisers in this regard.