The UK does not generally charge capital gains tax (CGT) on gains made by non-residents. However, the government considers this to be unfair as regards UK residential property, given that UK residents are subject to CGT on disposals of property, other than their main home, regardless of where the property is situated.
Consequently, following the proposals announced in the Autumn Statement, new rules will take effect from 6 April 2015, aimed at property which currently is, or could be, used as a residence. The tax will only apply, in most cases, to gains made above market values from 5 April 2015, and there will be a requirement for vendors to report relevant transactions irrespective of whether there is a gain, and, unless already filing UK Self-Assessment Tax Returns, to pay any tax due within 30 days.
The objective is for non-residents to be taxed on a comparable basis to UK residents. Individual UK higher rate taxpayers are subject to a 28% CGT rate, with basic rate taxpayers liable at 18%. As a result, it will be necessary for non-residents to declare their total UK income to ensure that the appropriate level of CGT is paid. The annual CGT exemption, currently £11,000, will in future be available to non-residents.
Currently an owner who has two or more residences may elect for only or main residence relief on disposal. Consequently, a non-resident with homes in both the UK and overseas could avoid the new CGT charge simply by electing for his UK home to enjoy the relief. It is therefore proposed that, from 6 April 2015, someone not resident in the UK may only claim the main residence relief on disposal of a residence if they spend at least 90 days in a tax year in one or more dwelling houses in the UK in that year. Similarly, a UK resident is only able to claim the main residence relief on disposal of a residence overseas if they spend at least 90 days in a tax year in one or more dwelling houses in the overseas territory in that year.
Detailed guidance on the practical aspects of the change has yet to be published. However, it is clear that first disclosures may need to be made by May 2015, for anyone disposing of UK property under the new regime.
The proposed CGT extension represents a significant change for non-residents holding UK residential property. Anyone who is likely to be caught by these measures should seek professional advice as soon as possible in order to consider what planning may be undertaken, and here at Saffron we would be very happy to help!