I am an ex-pat living abroad and am classed as non-resident, but have property in the UK. I have read that the Chancellor plans to extend capital gains tax to cover any sale of property I make. What are the implications for me?
At the moment, the basic rule is that individuals who are resident outside the UK do not pay capital gains tax in the UK, even on the disposal of UK assets. This contributes to the attractiveness of UK real estate as an investment class for foreign investors, and is one of many factors that has led to the incredibly high prices that we are now seeing in London.
Nobody yet knows how the new rules will be constructed, but there seems to be a fair chance that ex-pats will be caught. As a result, they may in future suffer a UK capital gains tax charge if they sell their UK property.
Assuming that the change is introduced as expected, the key question will be whether the rules will allow existing property holdings to be automatically ‘re-based’. Rebasing would mean that, when calculating their gain, sellers would be permitted to use a current valuation (probably the date that the rule is introduced) as the asset’s base cost rather than its actual historic cost. This would be a much fairer way to introduce the rule and in most cases of UK property holdings would reduce the tax payable.
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The changes are also likely to affect other non-resident owners such as trustees and companies, together with their beneficiaries and shareholders. It remains to be seen how the changes will interact with the vast array of other complicated rules which apply to these entities, and in particular the new rules on CGT which were introduced as part of the ATED legislation.
Non-residents sitting on very large capital gains, who wish to take pre-emptive action, may wish to trigger those gains now by transferring the property to another individual or structure. Such action comes with cost implications but may prove very sensible if automatic re-basing does not form part of the provisions. Where sales are already in the pipeline, it may be worth trying to accelerate the sale or enter into some other pre-sale planning.
Finally, individuals should bear in mind that if they have they no intention of selling their UK property, the changes should hopefully have little impact. When individuals die their assets (including any UK properties) are automatically re-based to current market values for CGT purposes (although the quid pro quo is that UK inheritance tax is normally payable). There is no current indication that this rule is likely to change.
Chris Moorcroft is a solicitor at Harbottle & Lewis
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