Q. I am an overseas investor with property in the UK and plan to sell sometime soon. I first heard last December that the Chancellor intends to extend the scope of Capital Gains Tax (CGT) to include the sale of residential properties in the UK which are owned by non-UK residents. When will it come into force and more importantly will I be liable?
A. The Government believes that CGT should be applied to non-residents in the same way that is applied to UK residents. Moreover, they point out that the proposed measures will bring the UK into line with many other countries, which charge CGT on the basis of the location of the property rather than the location of the seller. The extended tax will apply from April 2015. The precise date has not yet been specified but is likely to be either the beginning of the month or the beginning of the tax year. So who will be liable? All individual non-resident owners (including expat Britons) unless they can claim Private Residence Relief (PRR) – i.e. they can show that the property was their main residence during the period of the gain. Properties held in corporate wrappers regardless of their value. Multiple dwellings sold in a single transaction. Gains on UK residential property made via trusts. Fund structures which cannot demonstrate a “genuine diversity of ownership (GDO)”. An exemption may also be made for funds whose property holdings are predominantly non-residential. However, CGT will not apply to disposals of shares or units in a fund by non-resident individuals. Some non-resident property investment companies may also be brought within the scope of the extended tax depending on their corporation tax liability. The definition of residential property includes student accommodation which does not form part of a hall of residence attached to an institution. CGT will only apply on gains made after April 2015. Two rates of tax are proposed for individual owners: 28% (for higher rate taxpayers) and 18% (lower rate taxpayers). The rates applicable for other entities are to be confirmed. Initially, the financial impact will be minimal as CGT will not be applied to any gains made before April 2015. For individual direct non-resident owners, it is likely that the higher rate of 28% will apply. If we assume a hypothetical property value of £1m as at April 2015 and a 10% growth in the value over the tax year this would equate to a CGT liability of £28,000. For non-residents owning their properties, there is a clear choice between selling off your property before the introduction of the extended CGT or keeping it. Although it has not yet been confirmed, it seems likely that property values will be re-based to align with the introduction of the extended CGT in April 2015. Should owners decide to retain their properties a valuation on the official re-base date should be carried out. With regard to indirect ownership (i.e. via a trust, fund or other corporate vehicle) a similar choice will need to be made. The value of an individual’s interest in these structures will be more clear-cut, however until the applicable CGT tax rate is announced, it may benefit to wait before making a decision. Matters relating to tax are not straightforward and consideration of the wider tax implications is recommended. It is therefore advisable to seek the opinion of a qualified tax specialist before making any decisions.