The Chancellor (Minister of Finance UK) has announced that the government intends to consult on proposals to extend Capital Gains Tax (CGT) to non-resident individuals holding UK residential property directly, as well as enveloped property (for example, property held through an offshore company) worth £2 million or less
This follows the introduction from April this year of the ATED (Annual Tax on Enveloped Dwellings), affecting companies with interests in residential property. Currently UK residents are charged CGT at a maximum rate of 28%, where gains arise on the disposal of assets anywhere in the world. In general, non-residents are not taxable.
Having confirmed the Government’s intention to introduce such a
tax extension, there are now a number of significant issues that would have to be resolved, including whether there will be a relief for an individual’s main residence (as there is for UK-residents) and some questions about the operation of double tax relief.
Another major concern is whether houses currently owned by non-residents will be ‘rebased’ at the date the charge is introduced , by which we mean, whether the taxable gain will be limited to the part of the gain arising since that date. Bringing the whole gain into charge to tax irrespective of when the property was acquired would effectively amount to retrospective taxation.
Collecting the tax might not be entirely straightforward either, because non-residents don’t normally fall within the self-assessment system. One possible option would be to require tax to be accounted for before the transfer of the property could be registered, but this would have a number of disadvantages.
Taxpayers who own enveloped properties, particularly those whose property is approaching the £2 million limit that would see them caught by the ATED regime, will have to give careful thought to the future of their structure.
If you are non-UK resident and you’re considering acquiring or disposing of property in the UK you might like to seek professional advice before taking any action. For more information, or if you have questions in respect of this, please contact a member our team.