The process of consulting on the introduction of a CGT charge for non-UK residents, who sell UK residential property, from April 2015, is continuing and a paper has now been released.
The consultation paper suggests that some non-residents may be able to claim principle private residence relief if the UK home is their main home. Many years ago I had the experience of a jurisdiction close to us rejecting a claim for this relief for a non-resident simply on the basis that it could not apply to non-residents. The consultation process has shed some light on this thorny issue.
Additionally as we get closer to the date for the introduction of CGT for non-residents a key question is whether this begins to have an impact on the market generally. In this context it needs to be borne in mind that the introduction of the 15% SDLT rate for companies acquiring UK property proved to be very disruptive.There is therefore ample evidence that changes in tax rules can have an impact on the market.
Interestingly student accommodation will not be considered commercial property for these purposes, although for SDLT and ATED it is, unless it is part of a hall of residence attached to an institution. Most investors consider student accommodation not to be a residential type investment. The exclusion of these types of properties from being regarded as commercial perhaps shows that we can expect some widening to the original intention of restricting CGT on non-residents to residential property.
The biggest question that property investors will now face is whether they should revisit their UK investment strategy and perhaps diversify away from residential.
Anecdotal evidence suggests that the alternative of commercial property may be expensive and not worth looking at from an investment perspective. In addition, at the moment only certain student accommodation is excluded from the definition of commercial property, as time passes the list of exclusions could increase especially if tax yields from this measure are not high enough.
The widening of the ATED charge base can be expected to give rise to some reorganisations to avoid the ATED charge, especially where principal private residence relief would arise if owned directly, and we can anticipate a large number of cases where there are no immediate funds to pay the tax. As a result lower tax yields than is expected/needed is probably inevitable.
It is also worth remembering that not all corporate investors in property will be subject to CGT, whether resident or not. REITs were introduced in the UK to act as tax efficient investment vehicles and the current proposal is that REITs are to be unaffected by the CGT change. Pension funds will also be unaffected by the CGT change.
Only time will tell where this one goes to…
photo credit: audreyjm529 via photopin cc


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