The Finance Act 2015 introduced the Government's much trumpeted proposals for Capital Gains Tax (CGT) for non-UK residents disposing of UK residential property. The charge (20% for companies, 18% or 28% for individuals and 28% for trusts) applies to sales and gifts of UK residential property, although it only applies to gains arising from 6th April 2015. To calculate the post-April 2015 gain, either the property can be revalued at that date or the entire gain from acquisition to disposal can be time-apportioned. There is an exemption for residential properties held by institutions and widely held companies and funds.
Interestingly, the HMRC FAQs state that even where there is no gain, there is still a duty to report the disposal to HMRC. The same reporting process applies regardless of whether there is a chargeable gain, a gain covered by a relief such as the main residence exemption, or a loss.
Crucially, the CGT main residence exemption is being restricted for non-UK residents: broadly, a non-resident must spend at least 90 midnights in his UK home in a tax year for it to be treated as his main residence in that year. This 90 midnights rule also applies in reverse to UK residents seeking to claim the exemption on an overseas property. Confusingly, the 28% ATED-related CGT charge which already applied to certain companies owning residential property remains, and takes priority where both charges apply.
The new CGT regime for non-UK residents, coupled with the ATED-related CGT rules, means that almost all UK residential properties held by non-residents are now within CGT. It is unfortunate that the ATED-related CGT charge remains, as this introduces a degree of complexity in the operation of the new charge. While ATED-related CGT takes priority over the new CGT charge, it is possible that some properties may fall within the two regimes at different times, requiring apportionments to be made. Questions remain about how the tax will be enforced where a non-resident sells his only UK property and receives the sale proceeds outside the UK.
For non-UK residents who own a residence in the UK, satisfying the 90 day test for the UK property may have wider consequences with regard to residence status, as the number of days spent in the UK is a key test for residence.
For further information please contact:
Partner, Mishcon Private