Payment of CGT by non-residents on sale of residential property – your views required

 In Tax

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Payment of CGT by non residents on sale of residential propertyIntroducing payment of CGT by non-residents on sale of residential property – consultation document deadline for submissions now imminent

The Autumn Statement in December 2013 included the announcement of an extension of  capital gains tax (CGT) to non-resident owners disposing of UK residential property. On 28 March HMRC published its consultation document on the new rules relating to this charge; the deadline imposed for submitting your response to its proposals is 20 June 2014, so now is the time to act if you have something to say.

The stated aim of the new rule is to ensure that non-residents will be subject to UK CGT in a comparable way to UK residents, but the details contained in the consultation document make it clear that the changes could have a far wider impact than might have been anticipated. There are ways in which the new rules could equally be relevant for UK residents, and those affected are likely to be far greater in number than a change heralded as applying to non-residents would suggest.

Some areas of uncertainty in this proposed extension of CGT are highlighted by the consultation questions posed in the document. These include:

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  • How to deal with communal property e.g. boarding schools, nursing homes
  • How to deal with different forms of property ownership e.g. ownership through partnership, trust or company, all potentially coming within the ambit of the new charge
  • Whether a ‘genuine diversity of ownership’ test would be appropriate to identify funds that should be excluded from the scope of the extended CGT regime, and if so, how it should be applied
  • How to change PPR election rules to prevent abuse by non-residents
  • How to ensure payment of the CGT on a relevant disposal

Changes to PPR rules

The consultation document makes it clear that the Government intends to change the present Principal Private Residence (PPR) rules so that it will no longer be possible to elect which is an individual’s main residence. Consultation is sought on two possible new approaches to ascertaining a PPR:

  • using a factual approach, along the lines of the facts presently considered if no election is made
  • using a fixed test e.g. the residence in which the individual has spent the most days in any given year

Those interested are invited to offer their views on potential unintended consequences of changing the present PPR rules, which of the two approaches would be most suitable to ensure that PPR effectively provides relief on a main residence only, and also on whether there are any other approaches that could be recommended. As the changes to the PPR rules are to apply to UK residents as well as non-residents, their application will be of widespread relevance, and you should consider now whether you want to make a response.

Withholding tax

The consultation document had included proposals for the use of a withholding tax which would have had a significant impact of professionals involved in the disposal of residential property by non-resident owners. The good news is that at a joint HM Treasury and HMRC working party meeting held on 22 May, well attended by practitioners, it was announced that the proposal to have a withholding tax had been replaced. The replacement proposal is that a form should be submitted by non-residents within 30 days of the sale, making a payment on account, calculating the tax due or indicating the gain will be reported in their UK tax return. There is currently no intention to place a legal obligation on any agent to withhold tax. The consultation document had sought views not just on the withholding tax, but also on ‘alternative mechanisms for collection’, so any initial thoughts on the new proposals can be included in submissions made.

Making submissions

Any response you want to make to this consultation, whether on the PPR rules, collection of the tax or on any of the other matters raised in the consultation document should be submitted by 20 June. The document itself can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/298759/CGT_non-residents_condoc.pdf. It asks that responses should be sent by email to: capitalgains.taxteam@hmrc.gsi.gov.uk, with the subject heading “Consultation on non-residents”. Alternatively, send responses by post to Alan McGuinness, Specialist Personal Tax, Assets and Residence Policy, HM Revenue and Customs, 100 Parliament Street, London SW1A 2BQ; or to Sarah Adams, Enterprise and Property Tax, 1 Horse Guards Road, London SW1A 2HQ.

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