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New CGT rule for non-resident landlords

by Mike Abbott | May 27, 2014
  • In his 2013 Autumn Statement, Chancellor George Osborne announced an important change to the UK tax system – namely, the extension of Capital Gains Tax (CGT) to non-residents selling their UK residential properties. At present, it is unclear how the rules surrounding Private Residence relief (PPR) will exempt individuals from these new CGT rules.
    new cgt non res
    According to David Gauke, Exchequer Secretary to the Treasury, “Britain is an open country that welcomes investment from all over the world…However, the government does not believe that it is right that UK residents pay Capital Gains Tax when they sell a home that is not their primary residence, while non-residents do not.” Non-residents, says Gauke, should not be exempt from paying tax on the gains that they make from selling residential property from abroad. 

    Consultation document

    HM Treasury have published a consultation document following Osborne’s Autumn Statement announcement, outlining a proposal to extend Capital Gains Tax to non-resident landlords. Although these changes will only be implemented from April 2015, what this means for non-residents is that they will now be charged Capital Gains Tax based on the location of the property, and not the location of the seller.

    The rules will mostly affect Sable clients owning London property who have since returned home; in other words, clients who were hoping to sell their UK properties without incurring UK capital gains tax. If you own residential property in the UK but are based in another country, the following information is crucial:
    • Residential property owned by offshore companies and trusts will be in scope of the CGT extension.
    • Private Residence Relief (PPR) will most likely be granted if the residence has been lived in while in the UK and the seller has emigrated from the UK. 
    • The Private Residence election process is scheduled to be reformed and potentially dropped.
    Clients with large properties that are owned by trusts will need to do some planning, as these rules are likely to trigger sales and the unwinding of London properties into personal names. 

    The government does, however, acknowledge that this process takes time. The rules that surround ATED (‘Annual Tax on Enveloped Dwellings’; i.e. a specific set of rules pertaining to UK residential property owned by offshore structures) will be rolled out first from April 2015, affecting company or trust-owned properties valued between £1m and £2m. Properties valued between £500k and £1m will fall in scope from April 2016. 

    A key point in the new CGT extension is that the charge will apply from April 2015, and only to gains arising from that date. 

    Private Residence Relief

    At present, it looks likely that Private Residence Relief (PPR) relief will apply, although we will only be able to confirm this when the final set of rules are made public. As April 2015 is relatively near, it is possible that a decision to sell might need to be made in the absence of the final rules being released. We will, however, keep you updated as soon as we can confirm that PPR will be applicable to the new CGT legislation. 

    The Treasury is adamant that the extended CGT charge will be “fair and sustainable, without imposing unnecessary or intrusive burdens on non-residents.” To view the consultation document in full, visit HM Treasury.    

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    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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