UK to Levy CGT on Non-resident Property Owners
20 December 2013
Posted by: Author: Rupert Worsdale
Author: Rupert Worsdale (Maitland)
The United Kingdom intends to impose capital gains
tax (CGT) on gains arising from the sale of UK property owned by non-UK
residents. The announcement on 5 December 2013 by George Osborne, Chancellor of
the Exchequer, reverses a near 50-year-old policy which allowed individuals,
whether British ex-pats or overseas buyers, to invest directly in UK property
with the ability to make any gains tax-free.
Rupert Worsdale, Partner with multijurisdictional
advisory firm Maitland, said that the development had been widely rumoured and
brought the UK into line with many other countries which already charge CGT on
real estate owned by non-residents.
Mr Worsdale said: "It is the UK government's
stated intention to increase revenue and to prevent a London property bubble.
Many commentators are suggesting that the new rules would lead to a reduced
appetite for high-end residential property. It is also possible current
overseas and ex-pat owners will look to dispose of property before 2015. This
could temper prices and lead to more houses being put up for sale.”
The announcement suggests that a form of
‘rebasing’ will be available and thus tax will only be charged on gains made
from 5 April 2015. It is not clear whether CGT will apply only to properties
acquired after April 2015, although our assumption is that it will apply to
properties owned prior to that date. It will probably be levied at the current
CGT rate of 28 per cent.
From 1 April 2013, in terms of the annual tax on
enveloped dwellings (ATED), the UK already imposes CGT on high-value
residential property which is owned by a company or other corporate body. In
contrast, Mr Worsdale said that the latest proposal will likely apply to all
non-residents (including individuals and trustees) and will apply to all residential
property, whatever its value.
He said that it was not yet clear whether or how
the new rules would interact with various other regimes, including ATED, the
rules which attribute the gains of trustees to beneficiaries, and the principal
private residence (PPR) relief. Early in
the new year, the UK government will publish a public consultation on how the
CGT proposal will be implemented.