In international terms, the UK has an unusual Capital Gains Tax regime. Those resident outside the UK do not – with a few exceptions – pay Capital Gains Tax on UK real-estate. However, this may be about to change...
You may have seen speculation in the press that the Government is planning to extend the provisions applying to UK real-estate so that non-residents (of any description) will be liable to capital gains tax on a disposal.
While there are, as yet, no firm proposals there are a number of signs that change may be in the offing. A parliamentary question from Conservative MP Mark Reckless and David Cameron's response suggests that there is political appetite for a change to the rules and with the ATED-related gains legislation which came into effect this tax year there is also the blueprint for such a change.
It may be that George Osborne will outline some changes in his Autumn Statement on 5 December.
We have set out our thoughts below:
1. Will something happen?
We suspect it will. We think that there is a sufficient head of political steam that something will be done and such an amendment would be consistent with the Government's policy of clamping down on those who “abuse the UK's tax system”. In addition, there is also a lot of pressure because London and South East house-prices are arguably over-inflated. The Government could also portray this as a simplification of the tax laws.
2. What will happen?
We suspect that any capital gains tax provisions will be in line with the ATED-related gains legislation and so will apply to residential property and not commercial. The extent to which the provisions will mirror the ATED-related gains legislation (i.e. applying only to properties over £2m, reliefs for let properties, no relief for main residences etc.) remains to be seen. Our best guess is that owner-occupied property may qualify for main-residence relief in the same way as for UK residents
We think that a change of this size will be too large to introduce immediately, so we would think April 2014 is the most likely date. We are aware that industry bodies have been in touch with HMRC and the Treasury following the media speculation and have asked for there to be a full consultation before any amendment is brought in.
Given that there were rebasing provisions in the 2008 and 2013 changes to the capital gains tax legislation our guess is that the Government will include rebasing provisions in any new changes. However, we also suspect that they might simply allow the April 2013 rebasing to apply (as it does for ATED-related gains) rather than adding yet another rebasing date within one year of the last one.
5. Is it time to panic?
At the moment the changes are only speculative and our view is that any change in the legislation will probably be published in draft form and consulted on prior to coming into force. Our opinion therefore is that non-residents holding UK residential property should be aware that the Government may be making moves to bring about changes to their tax status and should consider whether to restructure. However, given the current uncertainty we would not typically recommend restructuring at this stage.
If the Government was to bring in changes then, depending on the details of those changes and the way the real-estate is held, there may be ways to rebase it prior to the commencement date (if this is not provided for in the legislation) so as to minimise the liability for capital gains tax in the future.