07 July 2014

Capital Gains Tax

Watch Andrew Goldstone, Partner and Head of Tax talk about 'Capital Gains Tax'.


Mishcon de Reya

Capital Gains Tax

What is the Government proposing to change?

Andrew Goldstone
Head of Tax

The Government wants to introduce a new tax charge where non-residents who sell a UK residential property make a profit until now those non-residents have been exempt from tax.

Why Change?

First of all they want to raise tax and I think they think that there have been large gains on properties and non-residents until now have avoided paying tax on those profits.  My point though is that will it raise as much as they hope because if you ever tax an activity, people tend to do less of that activity and that means there is a risk that non-residents simply won’t sell the properties and what happens then estate agents lose out, solicitors, removal companies, all the people that make money from sales.  They pay tax, they pay VAT so it may not raise that much.  Secondly there is political expediency.  Clearly it is a vote winner to make non-residents pay the same amount of tax as UK people.  Finally in London where probably most of the non-residents are buying property we’ve seen huge price rises in London and I think the Government thinks that this might depress demand, that may keep process down for the rest of the population.

Who will this change affect?

This change is going to affect non-resident owners of residential property but it is not just individuals, it is going to apply to companies, non-resident trustees and partnerships and it is going to apply to all property, all residential property of any value and it doesn’t matter whether its rented out or whether it is occupied by the owners or left empty.

Is this a major change for international individuals?

This is a very big change for international individuals because until now they have been exempt from capital gains tax when they sell UK property.  Now, the change brings the UK really in line with most of the other G20 countries but the question is, is this the slippery slope maybe to imposing capital gains tax on non-residents on other assets.

How does this consultation affect UK residents?

There is a rule that says that if you sell your main residence it is exempt from capital gains tax.  That applies to you and me.  Now if you have got two or more properties you are allowed to choose which of them is your main residence.  Now understandably the Government is concerned that if they are trying to impose capital gains tax on let’s say, a Saudi who owns a property here, well if that Saudi was allowed to choose between his Saudi property and his London property, he will choose his London property to be his main residence.  That way he would avoid capital gains tax and so the Government are proposing that nobody will be allowed to make an election any more where they have two or more homes.  That’s going to affect all of the UK residents that own two or more properties so if I own a London flat and a little place in the country, I won’t be able to make the choice anymore.  In my view this is going to have a huge effect on a lot of UK residents who are really not the subject of this consultation and it’s a major change that really is being brought in by the back door.

What happens next?

The proposals were announced in Autumn 2013.  There will be a year or so of consultation and discussion and they are expected to come in in April 2015.  Now we at Mishcon de Reya, we’ve been busy lobbying, myself and one of my partners are on committees that are speaking to the Inland Revenue trying to make the rules work.  We know we can’t change the policy but I genuinely think that the Inland Revenue have not understood some of the intricacies and the practicalities of implementing this in a sensible and a fair way.

Mishcon de Reya