The UK has a well deserved reputation for its fair and liberal tax regime. And while this remains true, we are currently seeing some changes which affect both overseas and UK-based landlords. This is our summary of the latest developments.
Capital Gains Tax for overseas residents
Capital Gains Tax (CGT) will be introduced for all overseas owners from April 2015. It will apply to future gains from April 2015 and any previous gains (before April 2015) will be exempt.
The introduction of this tax brings the treatment of the sale of UK residential property by non-residents in line with that of UK residents.
The Government’s summary of responses to the consultation document
Following on from the consultation document issued in March 2014, the Government has released a summary of responses that were received and draft legislation for the 2015 Finance Bill which outlines how the new Capital Gains Tax (CGT) on the sale of UK residential property will operate, effective from April 6th 2015.
CGT will not apply on communal residential property. Any disposal of UK residential property made by ‘diversely held institutional investors’ will also be excluded. Neither will the charge be applied to any gains made on the sale of UK commercial property.
Rate – companies
For non-resident companies, the tax will be charged at 20%, the same as the Corporation Tax rate for UK companies – there will be a limited indexation allowance to account for inflation.
Rate – individuals
The rate for non-resident individuals will be the same as for UK residents, which is 18% or 28%, depending on the total UK income and gains in the tax year of the disposal. There will be an annual exemption of gain which is currently £11,000.
Rate – trustees
For non-resident trustees the tax will be 28%, the same as for UK resident trustees. The annual allowance for trustees is half the amount available to individuals.
Losses can be carried forward to offset against any future gains on the sale of UK residential property.
Private residence relief (PRR)
Currently, UK individuals are exempt from paying CGT on the sale of their principal place of residence. This will also be available to non-residents, however, a new rule is being introduced for properties located in a country in which the individual is not resident.
A person will only be permitted to claim PRR in any year of ownership if they were a tax resident in the UK in the year of disposal or have resided in that property for 90 days in that year. Where the property has been the main residence at any time over the period of ownership, the gain in the final 18 months of ownership will qualify for PRR.
The charge is effective on any gains made after the introduction of the tax on April 6th 2015. Any gains from that date can be either calculated by revaluing at that date or by time apportioning the gain over the period of ownership. In certain circumstances, the taxpayer may choose neither to rebase nor time apportion and instead use the original purchase price when calculating the gain.
It is widely expected that most non-resident property owners will prefer to revalue their units which is considered the default position.
We have negotiated rates with a specialist surveyor who can carry out valuations on your behalf.
The rates are:
- Desktop valuation – £350 + VAT
- Two page report with internal inspection and two comparables – £550 + VAT
- Detailed report – £1000 + VAT.
For more information, contact Monika Semanova on 0207 319 9730 or email firstname.lastname@example.org
The disposal of any right to acquire a UK residential property ‘off plan’ before it has been constructed will be subject to the charge in the same way as if it were the sale of a completed property.
Reporting and payment
There will be a new reporting and collection method which is yet to be finalised. It will be based on a payment on account process rather than a withholding tax.
Non residents will be required to notify HMRC within 30 days of the disposal, even if there is a loss or the gain is below the annual exempt amount. Any PRR relief claimed would also need to be notified.
Further information on new CGT rules
We have prepared a comprehensive guide to the new CGT rules .
The Labour Party has stated that, if it comes to power in the 2015 election, it plans to introduce a Mansion Tax on properties valued at over £2m.
We don’t know yet exactly how such a tax would be applied, though we have been told that it would be no more than £3000 per annum for properties valued at between £2m and £3m.
We have also been told that those on lower incomes, such as the elderly, can roll over the tax so that it is only payable when the property is sold or the owner dies.
It has been estimated that the tax could be £7000 per annum for properties between £3m and £5m and as much as £125,000 per annum for properties above £20m.
There are many groups campaigning against such a tax, arguing that it is being used as an election campaign gimmick and that it would be unfair to many people, as well as being difficult and costly to administer. Many would prefer a reform to the outdated Council Tax system instead.
We will keep you informed of any new developments, as and when they occur.
Annual tax on enveloped dwellings (ATED)
This new annual charge will apply to anyone owning a UK residential property valued at over £2m through a corporate or similar entity. Whilst there is no tax payable if the property is rented out, all property owners will be required to submit an ATED return. The threshold for ATED is reducing to £1m from April 2015 and again in April 2016 to £500,000.
Although most of our clients will be exempt from any ATED payment, failure to submit a return could lead to a penalty so do consider using our professional ATED return service to help you comply with the new regulations.
If you have any questions about any of the ongoing tax changes, please do contact us.