Overseas property owners in the UK: The honeymoon is over!
By Alan Rajah, Lawrence Grant, Chartered Accountants
The UK's unique exemption from Capital Gains Tax (CGT) for non-UK residents has been reformed with the government's realisation that tax should be paid on gains arising from the sale of UK residential properties. Currently, most foreign property owners in the UK are not subject to CGT and this article
outlines the changes to the UK's CGT regime for non-residents which will come into effect from 6 April 2015.
Which properties are included?
Unlike the Annual Tax on Enveloped Dwellings (ATED) system, which currently taxes gains on the sale of residential property worth more than GBP 2 million owned by "non-natural persons", there is no starting threshold value and all residential properties are potentially liable to CGT if sold by a non-UK resident at a gain.
Non-residents include individuals, partnerships, companies, trusts and offshore funds. Pension funds are excluded from this charge.
Communal residential properties will not be within the charge to CGT and this includes nursing, residential care homes, boarding schools and hospitals.
Commercial properties such as factories, shops and offices, for example, are also not within the scope of this new legislation.
However, rental properties are specifical ly included in the charge so that overseas landlords will be required to pay CGT on gains arising from disposals alter 6 April 2015.
What is the tax rate?
Non-resident individuals will be charged between 18% and 28%, depending on the individual's total UK income and gains. They would also be entitled to the annual CGT exemption, which is currently the first GBP 11,000 of total annual gains. The rate applicable to companies has not been determined yet but the UK tax authorities are unlikely to apply the same rate and reliefs that are currently available to a company that is resident in the UK. However, the authorities need to ensure that EU companies are not discriminated
against in comparison with UK companies.
Proposed collection of taxes
The options available are:
- Report the gain in a sirnilar format to self-assessment ATED.
- Letting agents could withhold an amount from the sale proceeds.
- Solicitors acting on the sale may be required to withhold a percentage of the sale proceeds.
Each of the above options has its own problems in ensuring that the correct tax is paid by a non-resident. Furthermore, nonresidents in the UK may be required to report their UK gain by the country where they are resident, even if tax has been paid in the UK. The table above provides a summary of the current and future
CGT Position on non-ATED properties owned in the UK.
Anyone seeking to purchase a property in the UK will need to factor in a CGT estimate when making an investment.
Lawrence Grant, Chartered Accountants, London, United Kingdom
T: +44 208 861 75 75
Lawrence Grant, Chartered Accountants provides UK and international accountancy and tax services to companies and individuals considering UK investrnent opportunities. The firm combines a thorough evaluation of the client's business with expert advice, planning and projections to help create a tax efficient business.
Alan Rajah has over 20 years' experience of working on international tax, consulting on a wide range of clients from large multinational corporations to SMEs and individuals. Alan's focus is on international structuring, but he also advises individuals coming to or leaving the UK.
Published: November 2014