The long
awaited Consultation Paper, relating to the Government’s proposal to start to
levy UK Capital Gains Tax on gains realised on UK-sited residential property by
non-residents, was published this month.
Some of the
measures proposed in the Consultation Paper are as expected but there are some
areas which are still not clear but no doubt the consultation process will
flush out many of these and help to ensure we get legislation introduced next
Finance Bill (2015) which will have clarified the situation.
The main proposals are:
·
a
chargeable gain will arise on residential property sited in the UK when
disposed of after 6 April 2015 by non-residents
·
there
is no reference in the Consultation Paper to any form of re-basing to establish
a cost base valuation of the property as at 6 April 2015; so it is assumed that
there will be some measure of relief in the form of a straight-line time apportionment
of the gain over the total period of ownership of the property (similar to
Principle Private Residence relief)
·
the
definition of residential property
includes student accommodation provided via the private sector ie off campus
accommodation by private landlords
·
the
wider definition also makes it clear that the new charge will apply to “property used or suitable for use as
a dwelling i.e. a place that currently is, or has the potential to be, used as
a residence” so properties
currently being converted into accommodation will be caught
·
the
annual Capital Gains Tax Allowance (currently £11,000 in 2014/15) will be
available to the non-resident
·
the
Capital Gains Tax rate will be calculated by reference to all other UK sourced
income that remains taxable in the UK for the non-resident in order to
establish the tax band appropriate to the gain on the property – this measure
may impact those in receipt of Government Service pensions particularly harshly as part,
or all, of their basic rate band could already be assigned to their Government
Service pension which remains taxable in the UK
·
the
new charge will affect not only individuals but also many structures such as
partnerships or non-resident trustees or funds
·
Non-UK
resident companies were already targeted by a tax charge introduced a few years
ago (the ATED scheme) for properties of more than £2m; the new regime will be
extended to such companies but it is not yet clear how the inter-action with
the ATED scheme will work in all cases
·
The
proposed UK treatment is in line with the tax treatment of similar gains in many
other jurisdictions, although the implications of the different Double Tax
Agreements may impact whether there will be any further capital gains tax to
pay in the country of residence
·
There
is no specific reference in the Consultation Paper to losses made but it is
expected that such losses will be available to carry forward but whether this will
be of benefit to a non-resident will depend upon personal circumstances
·
The
consultation process closes on 12 June 2014