The government has issued a three-month consultation on plans to introduce a capital gains tax (CGT) charge on non-residents selling property in the UK, which is likely to hit the expat community as well as high net worth foreign property owners.
The consultation, Implementing a capital gains tax charge on non-residents, was first flagged by the Chancellor in the Autumn Statement 2013 last December.
From April 2015, non-residents disposing of UK residential property will be subject to a CGT charge. Due to the potential complexities around the new charge, the government has accepted that it not come into effect into next year and will not be retrospective.
The extended CGT charge will affect property used or suitable for use as a dwelling, ie, a place that currently is, or has the potential to be, used as a residence, but it will not affect second homes. However, gains made on disposals of residential property used as an investment are likely to be subject to CGT.
It also appears that the government will rule out packaging properties into a single sale to avoid CGT. The consultation states that ‘the government does not believe that disposals of multiple dwellings in a single transaction should be excluded from the CGT charge, unlike treatment in the stamp duty land tax (SDLT) regime where a transaction involving six or more separate dwellings is currently treated as a non-residential land transaction, capping the SDLT rate at 4%’.
It is also expected that there will be a number of measures in place to deter abuse of the system. There are also indications that the enveloped dwellings' £500,000 ceiling may also be further reduced in the next few years bringing more properties into the 15% charge band.
The consultation sets out the proposed scope of the regime and likely design features, and seeks views on the approach proposed and potential impacts. A further technical consultation is possible depending on reaction to this plan.
‘This measure will bring the UK into line with many other countries that already charge capital gains tax on the basis of the location of the residential property rather than the location of the seller, said David Gauke, Treasury secretary.
A number of workshops will also be held with affected stakeholders to discuss the implications of the rule change.
The consultation is available here https://www.gov.uk/government/consultations/implementing-a-capital-gains-tax-charge-on-non-residents
The closing date for feedback to the consultation is 20 June 2014.