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March 4th 2014 / BY: Wisteria

Capital Gains Tax – Changes to the CGT rules for Non-UK Residents

Currently, Capital Gains Tax (CGT) is payable on any gain made on the disposal of a chargeable asset. After taking into account the annual exemption, the gain is then charged at either 18% or 28% depending on which tax bracket you fall into. Under current legislation, capital gains tax is only payable by UK residents (residency being determined by the new Statutory Residence Tests (SRTs) which came into effect as of April 2013).

HMRC and the UK government recently announced their aims to target gains made by non-UK Residents. Their ultimate aim is to bring the gains made by non-UK Residents under the scope of Capital Gains Tax. This is likely to increase the amount of capital gains tax received by HMRC but could also reduce the chances of foreign investment in UK assets. Having said this, the new proposed changes to CGT will not come into effect until April 2015 at the earliest.

capital gains tax

So what does this mean? Firstly, the new changes do not mean that if you are non-UK Resident that from April 2015, any UK asset you hold will be entirely chargeable to CGT.

Instead, what this means is that as of April 2015, any gain made from this point in time will be chargeable to CGT for non-UK Residents (note: rules on CGT and UK Residents are not affected by these changes). Below is an example to show this.

Example 1

Juan a non-UK Resident bought a property in the UK in January 2005 for £350,000. He then sold the property for £750,000 in December 2017. The house has valued in April 2015 at £600,000.

As Juan was a non-UK Resident at the time of disposal, the gain that he made since April 2015 is chargeable to UK CGT. This means is to pay Capital Gains Tax on only £150,000 and not the total gain of £400,000 made on this property.

Seeing as there will only be a chargeable gain as of April 2015 for non-UK Residents, this will mean that there will be the need for a valuation as of April 2015 so that any gain from this point in time can be accurately calculated. In terms of residential property, although it hasn’t been finalised, there would be a rebasing date that is yet to be confirmed.

The other possibility to note is that the rate applicable to non-residents may differ to those for UK Residents in that the rate of CGT would be 28% (which is the top rate of CGT payable by UK residents). This however is yet to be set in legislation.

Although there is this proposed CGT charge on non-residents, the actual effect of this will largely depends on the tax regime of their resident countries. This is because if there are certain Double Tax Treaties in place, then the individual may be able to claim a certain level of relief for their UK Asset Disposal.

As the finer details are still yet to be defined and as this is a highly complicated area, if you would like to find out more about the proposed CGT rules, then please feel free to contact one of the tax team on 020 8952 0140. Alternatively you can email us on info@wisteria.co.uk.