It is widely known that from 6 April 2015 a new Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More (“Capital Gains Tax ("CGT") applies in certain cases when an asset is sold for more than it was originally purchased. The taxable gain (profit) may be triggered following the transfer of an asset, although commonly this would follow a sale. A number of tax reliefs are available to exempt or reduce the tax that may apply. Basic tax planning may... More”) regime will apply to non-resident owners of UK residential property. This will be known as ‘extended CGT’ and will apply to all property sales post 6 April 2015.
However the government’s initial consultation document published earlier this year, left many questions unanswered…
On 27 November 2014 published its long anticipated response to those questions and this confirms the CGT payable by non-residents will be calculated on a similar basis to UK tax residents, specifically on those burning questions:
Calculating the Tax Payable
The default position will be that gains are calculated with reference to the uplift in value of the property since 5 April 2015, however it will be possible for most taxpayers to elect to time-apportion the gain on a straight line basis, or use the original cost if preferred.
Individuals will pay CGT on all gains which exceed the annual exemption (£11,100 in 2015/16) at either 18% or 28% depending on the level of other UK taxable income.
Trustees will pay CGT on all gains at 28% and after being given relief to the value of 50% of the annual exemption available to individuals i.e. £5,550 in 2015/16.
Companies within the scope of extended CGT will pay 20% CGT on gains realised on the disposal of UK residential property. It should be noted that the ATED regime applies in priority to extended CGT, gains which are subject to ATED related CGT are taxed at a higher rate of 28%.
Reporting and Tax Payment
It was originally anticipated that tax would be withheld at source when a property was sold, however this will not be the case.
Instead, a payment on account process will be implemented the mechanics of which are not yet finalised – but it’s expected that non-UK resident vendors will have to notify Her Majesty's Revenue and Customs (HM Revenue and Customs or HMRC) is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support and the administration of other regulatory regimes including the national minimum wage.... More within 30 days of making a sale and make a payment on account of any tax due within 30 days of completion.
There will be an exemption from this process if the vendor already files a self-assessment tax return, this will be the case for most non-resident landlords. They will report the gain and pay any tax under the current rules for self-assessment.
Non residents who are required to make a payment on account will be deemed to have made a self-assessment return when the payment on account is made. This will effectively allow them a twelve month period to amend the “tax return” and the tax that is due.
The proposals raise further questions around the practicality and enforcement of these new laws so we will be looking for the devil in the detail when draft legislation is published on 10 December 2014.
This summary is by no means exhaustive and we will be working closely with clients effected by this change in law. If you would like to arrange a consultation to consider yours or your clients exposure under the extended CGT rules then please contact us.