Capital gains tax payable by non-resident owners of UK residential property

Solicitors are receiving instructions from more and more of their clients living abroad who wish to sell their UK properties before the introduction of the new capital gains tax for non-residents.

The change to the capital gains tax regime will impose tax on residential property held by non-UK resident individuals. From April 2015, capital gains tax will be charged on gains made by non-UK residents on the sale of UK residential property.

The specifics of how the measures will be implemented are not yet known. A consultation which had been expected in early 2014 is yet to emerge.

It is not known if the ‘acquisition cost’ will be the original purchase price, the market value as at April 1982 or April 2015 when the measures are due to be introduced; or whether the rules will only apply to residential properties purchased after April 2015.

As an indication, measures introduced in April 2013 imposed capital gains tax liability on non-UK companies who sold UK residential property valued at over £2m. In these instances, the calculation of capital gains tax applied only on gains or losses arising after 6 April 2013 or on a later acquisition date.

It is rumoured that these measures will be extended to ownership of any UK residential property by non-UK companies, regardless of value. This would remove the inconsistency whereby a non-resident investing through a company pays UK capital gains tax but a non-resident investing directly does not.

A non-resident client has to weigh up the benefits of winding-up offshore companies that owned their UK properties to avoid charges to capital gains tax, against the potential inheritance tax benefits of continuing to own the UK property through an offshore company. If the changes are implemented as planned, this may no longer be a consideration.

If clients wish to retain residential property in the UK, they may be advised to sell the existing property prior to April 2015 and reinvest in another property to “rebase” the acquisition cost at current levels.

Overall, however, these changes are not out of touch with other major economies and in many cases the effect of any double taxation treaty will render concerns meaningless if liability to capital gains tax in the resident country exceeds the capital gains tax liability in the UK. Contact us today to discuss planning your inheritance tax.