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7 top tips: the new capital gains tax charge on non-UK residents

A significant change to the tax treatment of non-UK residents owning residential property has recently taken effect. 

In the past, non-UK residents who owned UK residential property were not subject to UK tax on capital gains when they sold their property.

However, the tax position of non-UK residents has become much more complicated over recent years.

For example, since April 2013, where a non-UK resident holds residential properties through a corporate structure, there has been an annual tax on enveloped dwellings (“ATED”) and a related capital gains tax charge (“ATED-related CGT charge”). 

Now the latest tax charge brings the tax treatment of non-UK residents much more into line with that of UK residents, whether the property is held in a corporate vehicle or not. 

Even though, following the Conservative general election victory, the mansion tax is not expected to be introduced, non-UK residents need to take careful advice as to the best way now for them to hold UK residential property.

Here are our top tips about the changes:

  1. The new tax charge generally only applies to gains made from 6 April 2015, with properties being rebased to their 5 April 2015 market value. 
  2. The tax charge applies not only to existing buildings but to those that are suitable for use or being constructed or adapted for use of dwellings and also to “off plan” UK residential property which is to be constructed.
  3. There are exclusions for some communal property such as care homes, nursing homes and purpose-built student accommodation (although the relevant definitions in the legislation need to be studied carefully), and for properties where, on a sale, the gain would be subject to tax as income because the property is being held for the purposes of a trade, rather than a capital gain. 
  4. There is no exemption for rental properties and no threshold for the value of property below which the charge does not apply.
  5. The tax charge does not apply to commercial property.
  6. There is an important exemption for disposals made by non-resident “diversely-held companies”.
  7. The tax charge ranges from 18 per cent or 28 per cent for individuals down to 20 per cent for companies holding residential properties but where the ATED-related CGT charge applies it takes priority and imposes a capital gains tax charge of 28 per cent.
  8. In some circumstances individuals can make use of the principal private residence relief.
  9. A non-UK resident disposing of UK residential property now needs to notify HMRC of the disposal within 30 days from the date of the conveyance, whether or not the disposal gives rise to a gain which is liable to the new tax.

Non-residents buying “off plan” and already-built residential property should now consider carefully, taking into account their personal circumstances, whether they should own the property personally or through a corporate structure, taking into account factors such as inheritance tax, stamp duty land tax, the new capital gains tax charge, ATED and the ATED-related CGT charge.

Heather Corben is a tax partner at King & Wood Mallesons

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