Non UK residents have historically been outside the charge to UK Capital Gains Tax (“CGT”) when they sell UK residential property. This started to change with the introduction of a tax charge on property disposals by non resident companies (unless they could meet one of the various exemptions, which did include property letting businesses).
The UK Government announced last year that it was considering the introduction of a CGT charge on disposals of UK residential property by non UK residents. The implication at that stage was that this would only apply to non UK resident individuals.
A detailed consultation paper has now been released and this shows that a far wider class of non UK resident property investors will be caught. The proposal would be to tax individuals, partnerships, trusts, and funds that do not meet certain qualifying conditions. REITS and pension funds will probably be exempt. All residential property (other than certain types of communal accommodation) will be caught and there will be no exemptions for property letting businesses. The usual UK tax rates would apply (up to 28% for individuals, partnerships and trusts; probably the usual corporate rate of 20% for companies).
The intention is that legislation will be introduced and will take effect from April 2015. The wording of the consultation paper implies that only that part of the gain arising after April 2015 will be taxed. If that is the case then for existing property owners that part of the gain that arises for the period from acquisition to April 2015 will still be free of tax.
However, that may of course not be what happens in the final legislation. There are also elections in the UK next year. If there is a change of Government there is a chance that an incoming Government may wish to tax the entire gain on any property disposal arising after April 2015.
Property investors should start to consider the impact of the proposed change on their planned returns on investment. Prospective property investors should consider making their investment through entities that may be outside the scope of the charge.
A more detailed note on the proposals is included on this link, CGT and residential property.
More information on the proposals will be released over coming months after the end of the consultation period (June 2014) so investors do have some time to consider what may be the best action (if any) to take.