As announced in Autumn Statement 2013, the government intends to introduce a capital gains tax (CGT) charge on the disposal of UK residential property by non-residents with effect from April 2015. The details of their proposal have now been outlined in the government’s consultation document published on 28 March.
This follows on from the introduction from 6 April 2013 of the ATED (Annual Tax on Enveloped Dwellings) regime where a CGT charge can apply to residential property valued at more than £2 million. Under current legislation, other non-UK residents do not pay CGT on disposals of UK residential property (unless the sale is part of a trade being carried on in the UK). The government intends to extend CGT to non-UK resident individuals holding such property directly. The charge to CGT will be extended to disposals of property by partnerships and trusts where a partner or trustee is non-resident and will also apply to disposals of UK residential property owned by non-resident companies.
The CGT charge on non-residents is intended to correct the imbalance between UK and non-UK resident taxpayers and bring the UK into line with other jurisdictions (such as Australia, Canada, France, Spain and the USA) that already charge CGT based on the location of the property rather than the location of the owner.
At its simplest, the consultation document does what it says on the tin, that is proposes the introduction of a CGT charge on non-residents disposing of UK residential property. However, it does not confirm the expected rebasing of properties. In addition, despite the government’s stated intention of introducing the new regime in a way that minimises complexity as far as possible, there are a number of proposals that seem to conflict with this.
By proposing the removal of exceptions to CGT currently provided under the ATED regime and then charging the gains outside the ATED regime seems unnecessarily complicated.
Also, the proposed removal of the PPR election will impact all UK taxpayers, not just non-UK residents.
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