This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Andrew Goldstone & Jonathan Legg
22 November 2013

UK capital gains tax for non-residents?

There has been recent speculation that non-residents might have to start paying UK capital gains tax (CGT) on their UK property. The Chancellor will give his Autumn Statement on 5 December and any changes are likely to be announced then.

Possible scope of the charge?

The scope of the rumoured CGT charge on UK assets owned by non-residents is unclear.  Reports suggest it is most likely to apply to personally-owned residential property. It is unlikely there would be an exemption for tenanted properties since these are the only properties that would generally be caught by a new CGT charge anyway.  That's because owner-occupied properties would usually qualify for the CGT main residence exemption, even where the owner is non-resident. The rate of tax would presumably be 28%, in line with the main CGT rate.

It is likely that some kind of "rebasing" election would be available so that only future increases in value would be caught by a new CGT charge. To impose a CGT charge on historic gains would be considered grossly unfair and would effectively be a retrospective tax change. Whilst not impossible, we think that is unlikely.

When might the changes take effect?

If only future gains are to be taxed, there is no great rush and it seems likely the government would introduce the new CGT charge for disposals after 5 April 2014, with a consultation period before then. However, if the changes are to apply to all historic gains since acquisition, the new rules are more likely to take effect from the day of the Autumn Statement on 5 December. Otherwise the government would be giving non-residents an opportunity to sell tax-free between the date of the announcement and the future implementation date. On the other hand, cynics might suggest a rush of sales by non-residents over the next few months would generate a significant and welcome stamp duty land tax (SDLT) windfall. At the same time the government would still achieve its political aim of being seen to level the playing field by taxing future non-resident buyers of UK property.

Should non-UK residents rush to sell their UK properties before the Autumn Statement?

In practice that's almost impossible if the property is not yet on the market.  But if you are cautious, and if your property has significantly increased in value, and if you are currently mid-sale anyway, then it may be sensible to push the sale through before 5 December. In other cases, we would suggest a wait and see approach.

A return to offshore companies?

If a new CGT charge on non-residents is introduced, in our view the purchase of UK residential investment property through an offshore company may become more popular. That would be ironic in the light of the recent new tax charges on corporate-owned properties above £2m, but the attractions are clear. Depending on how any new CGT rules would operate, for tenanted residential properties over £2m (and even for owner-occupied properties under £2 million), ownership by non-residents through an offshore company could offer:

  • No annual property tax (i.e. no "Annual Tax on Enveloped Dwellings")
  • An inheritance tax shelter for non-doms
  • Standard SDLT rates capped at 7% (rather than 15%) for values in excess of £2m
  • A fixed 20% rate of income tax on rental income
  • The opportunity for the seller to sell the shares in the company free of both CGT and SDLT

The devil will ultimately be in the detail of whatever is announced.  Perhaps any new CGT charge will apply across the board – not only to individuals, but also companies and trusts.  Although it might be politically embarrassing, the recently introduced CGT charge for non-resident companies owning £2m+ homes may end up being replaced after barely a year.

Although the rumoured CGT charge on non-residents is only speculation at this stage, non-residents who own or are thinking of investing in UK property should monitor the position closely. We will issue a further Briefing following the Autumn Statement on 5 December.

For more information, please contact Andrew Goldstone or Jonathan Legg.