Non UK residents investing in UK residential property

Graham Chase, Tax Partner, CMS

It is proposed that non-UK residents should be brought within the charge to tax on capital gains in relation to UK situate residential property. This is proposed to be implemented from April 2015 in relation to “future gains”. A consultation will be published early in 2014 so at the moment we have few details.

It is not clear whether the charge will apply to individuals as well as companies and other non-natural persons. On the face of it the proposed charge applies just as much to the foreign quoted investor as to the weathly oligarch, although the “political storytelling” around it seems to be all about individuals and a London housing bubble.

It is difficult to see why the charge should be limited to individuals and of course a limited scope of charge would simply encourage avoidance by suitable ownership structuring. I therefore expect that the charge will be widely drawn.

The question of reliefs/exemptions is then raised. So for example should private residence relief be available? It looks to be difficult to deny the benefit of relief. However, a non-resident individual could elect to treat their UK property as exempt (assuming it has the necessary characteristics) secure in the knowledge that his or her non-UK home will remain outside the scope of UK charge. In practice this suggests that the tax take from foreign investors is likely to be small, even if the UK is their second home.

There may also be benefits. It is likely that any new charge comes compete with a capital gains rebasing so as to grandfather gains accrued to date. If so then this is potentially good news for owners looking to redomicile ownership back to the UK.

The true effect of the measure will not become clear until the consultation document is published, in the meantime it would be premature to suggest any action based upon the announcement.

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