The Government has been in listening mode as regards the consultation on subjecting non-UK residents to capital gains tax on the disposals of UK residential property. The revised proposals published in today’s Autumn Statement will minimise the administrative headache that might have arisen from the original proposals, which included changes to the ability to elect which property qualifies for private residence relief (PRR).

Basically, the Government has decided that from April 2015 a person’s residence will not be eligible for PRR for a tax year unless:

  • either the person making the disposal was tax resident in the same country as the property for that tax year; or
  • where not tax resident in a country, the person spent at least 90 midnights in that property (or across all of their properties in that country) in that tax year.

Tina Riches, national tax partner at Smith & Williamson, the accountancy and investment management group explains the impact of the latest proposals:

As a result, UK resident individuals with more than one UK home will still be able to nominate which one is their main home – this is welcome news.

However, due to the tightening of the rules for electing which property qualifies for PRR, non-residents who own a UK property or UK residents who own an overseas property may now find they are liable to pay some CGT on the eventual disposal. Interestingly whereas UK residents must notify which of their residences qualifies for PRR within two years of a change in the number of residences, non-residents are required to give notification at the date of disposal.

The new “90-day rule” will be crucial in determining the tax position – anyone who is on the cusp will need to take care to keep detailed records of the number of days spent in the property and also how that time affects their UK or non-UK residence status for tax.

The ’90-day rule’ will particularly affect those resident outside the UK who have a home in the UK. Where they spend more than 90 days in that property (or all their UK properties taken together) they could nominate which property benefits from PRR. This seems fair as it recognises those who have a significant presence in the UK.

However those non-residents who are only present for less than 90 days in any of their UK properties, taken together, will not benefit from the PRR. As a result, the gain on any of their UK properties will be subject to CGT on sale. This is likely to mainly affect those who buy a UK property as an investment rather than as a home.

Importantly and helpfully, any UK citizens who are resident abroad but who visit the UK home for 90 days, or if their spouse or civil partner is in residence, could still nominate it as their main residence. Of course as soon as they exceed 90 days in the UK the chances of being treated as UK resident increases, so some careful assessment of their circumstances will be important.

The 90 day rule may also catch UK residents with properties in other jurisdictions, eg with a holiday home in France, unless they stay there for at least 90 days per year. Providing they pass the 90 day rule on the French property, then they will be able to nominate which property is treated as their main residence.

Another welcome point is that communal residential property (such as care homes, nursing homes, purpose-built student accommodation and those for school children) will generally be excluded from the extended charge for non-UK residents.

Impact of the changes for companies and other entities owning UK property

The Government has recognised the benefit of large-scale institutional investment funds and companies; these will not be caught, but smaller private investment vehicles (including partnerships and trusts) will be.

For companies caught the rate charged is due to reflect the main UK corporate tax rate, which will be 20% from April 2015, a form of indexation and a limited form of pooling for groups. However, disappointingly the ATED-related gains regime is to stay in place. So some companies owning residential properties may find they move in and out of one regime or the other, although ATED-related charges will take precedence to prevent double taxation.

How it will be administered

The government has confirmed that it is only gains from 6 April 2015 that will be taxed, and that it will allow either rebasing to 5 April 2015 or a time-apportionment of the whole gain, in most cases. This flexibility is welcome.

Non-resident individuals and companies will need to report to HMRC within 30 days of the date of completion that a disposal has been made and make a payment of the tax that is due at the same time, unless they are already in self assessment.