Our local expert looks at the Treasury response to a consultation on capital gains tax extensions – and targets non-residents who own property.
A week before the autumn statement the UK Treasury published their response to a consultation on extending UK capital gains tax on residential property to non-resident individuals, companies and other entities.
The rate of tax will depend upon the taxpayer:
- 28% of the gain if the property has been subject to Annual Tax on Enveloped Dwellings (ATED) – broadly speaking not being let or developed; or
- 28% of the gain if the property is held by trustees or an individual (possibly a limited amount at 18% for some individuals depending upon their other UK income and gains); or
- 20% of the gain after inflation if the property is held by a company and not subject to ATED.
Some properties will be held by a company and be subject to ATED for part of the period of ownership but not all, in which case the gain must be time apportioned and taxed accordingly.
Individuals and companies not currently completing annual UK tax returns will have to file a return and pay the tax within 30 days of the sale completing.
This capital gains tax charge will be introduced with effect from the start of the next UK tax year (6 April 2015). Non-residents not subject to ATED will have the choice of either:
- Basing any gain on the increase in value since 5 April 2015; or
- Time apportioning the gain between pre and post 5 April 2015.
In most cases, rebasing will produce a better taxable outcome, but will require a surveyor’s valuation fee.
There are exemptions from charge for:
- properties held for communal use e.g. student accommodation, nursing homes etc;
- most institutional investors
- entities that are widely held (broadly speaking, controlled by more than five families); and
- where the property is an individual’s main private residence for a tax year, providing the individual spends at least 90 midnights in the property in that year (again, this may lead to the gain being time apportioned).
When taken with the introduction of ATED two years ago and the increases in the remittance basis charges in the autumn statement, these changes represent a significant increase in the UK tax burden for non-resident or non-domiciled individuals – I wonder if it is because they don't vote?