As widely predicted, UK Chancellor George Osborne MP announced on 5 December that gains made on sales of UK residential property by non-UK residents after April 2015 will be liable to UK capital gains tax.

The detail of the rules will be in a consultation paper, expected in the first quarter of 2014. At this stage it appears likely that:

  • Only gains arising after April 2015 will be taxed – property held now will be re-based to 2015 values;
  • The charge will apply to all residential property, not just homes worth more than £2million – this does not seem to be an "oligarch tax";
  • The usual relief for a main residence may or may not be available (as a non-UK resident's main home is almost by definition not in the UK);
  • Commercial property appears to be entirely unaffected by these changes.

Some important questions will have to wait for the consultation:

  • Will offshore companies pay the charge? Probably, but that will make the charges on ATED-related gains introduced only this year virtually redundant;
  • Will offshore trusts pay the charge? Presumably they will, but their exclusion from the ATED regime will be made to look rather strange;
  • Will the 28% rate apply to non-residents, or will there be a reduced rate to maintain the attractiveness of the UK as a destination for real estate investment? Our guess is that standard CGT rates (in practice 28% on the majority of the gain) will apply;
  • Will non-residents' liability to UK capital gains tax stop at residential property? Or is this the start of a change in how the UK sees its tax base?

This measure is very likely to become law without much controversy. The Chancellor asserts that it is simply unfair that UK residents pay capital gains tax on second homes while non-residents do not; most agree - the change is widely regarded as reasonable. Capital gains tax on real estate is also relatively easy to collect as transactions are publicly recorded.

Many structures for holding residential property will need review, especially some that were set up recently to deal with the ATED regime. Some people will inevitably tire of the UK's capricious personal tax regime and sell up. Others will have grown tired of repeated re-structuring. Many more will simply have to accept a degree of taxation on the profits of their investments, and will look for structures that minimise other tax exposures that they cannot tolerate – principally UK inheritance tax.