21 March 2019 - Article
Under the current Capital Gains Tax (CGT) regime, a UK property owned by a non-resident and standing at a gain will not be taxed to CGT on sale. Given the buoyancy of the London property market in particular, this exemption has considerable value for overseas investors, especially as many other countries do tax gains on the sale of real property by non-residents.
From April this year, however, there will be major changes to the rules on CGT. For the first time UK residential properties owned by non-residents will be caught by the CGT net. Non-residents owning a UK residential property standing at a considerable gain are right to be concerned, but exemptions and reliefs are available which can help to sweeten the pill.
The legislation provides for a rebasing to 6 April 2015, and losses can be off-set where appropriate. Exemptions are available for certain properties such as student accommodation and care homes, although no general exemption is available for let property. If the property is held through a company it can be subject to the lower rate of corporation tax instead of to CGT, and indexation may also be available which effectively eliminates inflationary gains. However, care should be taken to consider the impact of the Annual Tax on Enveloped Dwellings (ATED).
Principle Private Residence Relief (PPR), which operates to exempt the gain on main residences from CGT, will be extended to be available to non-residents who spend ‘at least 90 midnights’ in their UK property or properties in a tax year. Non-residents will need to be conscious of the number of midnights that they spend in the UK, as this may result in them being considered resident for UK tax purposes.
There is an interesting quirk to the new PPR provisions which may widen the scope of the relief for some international families. For married couples, it is possible for the required ‘at least 90 midnights’ in a UK property to be accumulated by both spouses. A non-resident can therefore claim PPR on a UK property, without risking their non-resident status, if their spouse stays in the UK property for at least 90 midnights.
It is therefore possible, with careful planning, to minimise the impact of the change in the CGT rules. Advice should be sought to ensure that all of the available reliefs and exemptions are being used.