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Non Residential Investors – Capital Gains Tax

Currently non-UK residents buying residential properties in the United Kingdom only had to pay UK Capital Gains Tax (CGT) on the sale of those properties if they were caught by the annual tax on enveloped dwellings (ATED) rules and did not qualify for any of the reliefs from ATED. Under the new rulings this will mean that non-UK residents will need to consider their UK tax position when they sell UK residential property after 6 April 2015.

Currently the top rate of CGT will be 28% for individuals and trustees, and 20% for companies.

Many individual investors might be able to claim principal private residence relief. The relief means that they will not pay CGT on the sale of their main residence, but only if  they meet the new conditions.  In order to claim the relief, the investor (or their spouse) need to spend a minimum of 90 days which means midnights in the UK each tax year in their UK properties, and providing that they do this, then that year qualifies for relief on a time apportioned basis. If they own more than one home in the UK or abroad, the investor must also elect the UK property of their choice for the relief. All investors should consider their personal circumstances and ensure they take tax advice before spending 90 midnights in the UK, as spending this much time in the UK could make many (not all) individuals UK-tax resident under the statutory residence test.

A complication is that the new rules will not override the existing ATED-related gain charge at 28% on companies which own residential property. Despite industry pressure, companies that purchase or hold residential properties within the ATED regime (which will include properties with a market valuation of more than £1 million with effect from 1 April 2015) and which do not benefit from any relief, will continue to pay the annual ATED payments and ATED-related CGT at 28% on the sale of residential property. Currently, plans to apply CGT to disposals of commercial property by non-resident investors have not been published by the government but with an election looming, this may change.