CGT on UK Properties for Non Residents
As foreshadowed in our article on overseas properties the UK government has announced that, from April 2015, non-residents disposing of UK residential property will be subject to Capital Gains Tax (CGT).
The UK authorities are currently going through a process of consultation around the proposed scope of the regime and likely features.
Currently non-UK residents are exempt from CGT on gains made on UK property. UK resident individuals are subject to CGT at varying rates, however, they do not pay CGT on their main residence. It is expected that the main residence exemption will still be available to non residents in limited circumstances.
Given the practical problems of collecting tax from non-residents, it is likely that the UK authorities will apply a withholding tax mechanism alongside a self assessment system with payments being within 30 days of settlement.
The new proposed rules apply from April 2015 and are expected to apply regardless of value on gains made after April 2015 with a forecast CGT rate of 28%. Any gains up to April 2015 are expected to be outside the scope of the new charge, however, how accrued but unrealised gains are to be dealt with is still uncertain.
Given that there is still time between now and April 2015, the proposed announcement may have many twists and turns and therefore should be closely monitored by those clients who have UK investment properties. It would be advisable to revisit exit strategies of the investments in light of the change in taxation treatment especially given the ATO’s position in relation to the ability to offset foreign tax paid on the disposal of foreign assets when the general CGT discount applies.
Should you have any queries in relation to the above or your investment structures generally please contact your relevant ESV engagement partner on 9283 1666.
Article by David Prichard