HMRC state CGT manifesto for non-residents

The Chancellor, George Osborne, said at the time: “It is not right that those who live in this country pay Capital Gains Tax when they sell a home that is not their main residence, but those who don’t live here do not. That is unfair, so from April 2015 we will introduce Capital Gains Tax on future gains made by non-residents who sell residential property here in the UK.”

The changes bring off-shore buyers in-line with UK residents, in a spirit of ‘fairness’, whilst providing a much needed tax boost to the Exchequer. The Government are also cracking down on UK residents electing second homes as their main residence.

One of the reasons for George Osborne’s decision was the rapid growth in London property prices, which many property experts believe could turn into an investment bubble. The rate of annual growth in London property prices was more than double the UK average in 2013
 
HMRC have now confirmed the new non-resident CGT will be realised only on profit made on divestment and gains made before April 2015 will be ring-fenced, either by re-basing values to the implementation date or by a time-apportionment for the whole gain.
 
There are a number of different rates: 18% of the gain for lower rate tax payers, 20% if the property is rented and held in a corporate wrapper and 28% for higher rate tax payers and people who have paid ATED CGT since 2013. Existing allowances which can be deducted from CGT remain in place, including:

- The Annual Exempt Amount: £10,900 (2013-14); all joint owners can use their exemption
- Stamp Duty Land Tax, VAT, fees or commission for professional advice or services, for example, legal and estate agency fees
- Improvement costs to increase the value of the property
- Any other capital losses from other assets in the UK

Non-residents having a home in the UK will obtain private residence relief if they meet the ’90 day rule’.
For example, if the PRR will be available for the tax year where the property is used as a main residence for more than 90 days. The rule will now be applied to UK second home owners as well.
 
HMRC have also clarified that diversely owned funds, such as LCP’s real estate funds, will be exempt, providing they meet the new “narrowly controlled company” test. This will be put in place to deter individuals from transferring their interests into non-resident companies to escape the CGT charge.
 
The implementation of this CGT is not expected to impact on the property market. As a tax, realisable only on gains, the absence of CGT has been a bonus for international buyers, not a fundamental driver. The advance warning last year did not have a negative effect on investors’ appetite.
 
Prices in 2014 in Central London, the heartland of international investment, have seen a 12.8% annual increase with average prices reaching £1.7m in Q3. Monthly Land Registry figures just released for October also show continued levels of growth in the two prime boroughs which make up Central London.
 
Naomi Heaton, CEO of LCP comments:

“It is to be expected that PCL growth will taper off in the short term, given the high growth levels already seen and the traditional market jitters before any general election when transactions can fall as much as 15%. However, there is no evidence that the long term fundamentals for growth will not remain in place and the new non-resident CGT in 2015 will not have an impact.

However, the extent of the post-election bounce back will depend on whether the Chancellor brings any surprises out of the hat in the Autumn Statement. On balance, he is unlikely to seek to upset the Conservatives core electorate and the need to remain an internationally attractive market may hold him back on any more foreigner bashing for the time being.”