New CGT rules for non-residents from April 2015

These represent a significant change to the tax position of non-residents. However, the rules also impact on UK residents insofar as they are looking to claim Principal Private Residence ('PPR') relief.

The changes to CGT will mean that non UK residents selling UK residential property will be subject to CGT.

• Non UK resident individuals will pay CGT at 18% or 28% depending on their level of income and the size of their gain.

• Non UK resident trustees will pay CGT at 28%.

• Non UK resident companies will pay CGT at 20%, to the extent that the gains are not "ATED-related" (ATED gains are taxed at 28% in the company). Non UK resident companies will benefit from indexation relief.

• Non UK resident individuals and trustees will be afforded the same annual exemption (for tax year 2014/15 £11,000 for individuals and £5,500 for trustees) as is available for UK resident taxpayers.

The charge will come into effect from 6 April 2015 and apply only to gains arising after that date.

In calculating the charge, the default position will be for property values to be rebased to market values as at 6 April 2015. However, the taxpayer will be given the option to either:

  •  "Time apportion" the whole gain over the period of ownership; or
  •  Calculate the gain (or loss) over the whole period of ownership in the usual manner.

Broadly speaking, PPR relief will continue to available. However, the government is planning to introduce changes to the rules determining when a UK property can benefit from PPR relief. Under the current rules, PPR relief eliminates a CGT charge which might have otherwise applied on the disposal of an individual's only or main residence. In general terms the relief is available where an individual disposes of a private dwelling house (or part of a dwelling house), which has been their only or main residence throughout the period of ownership, and was not acquired for the purpose of realising a gain on disposal.

Under the current system, a taxpayer with more than one residence can choose, by means of an 'election', for any given period, which of those properties they would like to qualify for PPR relief.

Under the new regime, PPR relief will only be available (as determined on an annual basis) if:

  • The individual making the disposal was tax resident in the same country as the property for that tax year; or
  • The individual meets a new "90 day rule".

To meet the "90 day rule", the individual must have spent at least 90 midnights in the property in the tax year for which the PPR relief is claimed. Where an individual owns more than one property in an overseas jurisdiction, the 90 day rule will apply across all of those properties.

Accordingly, non UK residents who spend 90 nights a year or more in the UK will still be able to sell their property from 6 April 2015 onwards free of CGT. However, such individuals will need to be careful that they do not become UK resident for general tax purposes. In particular, such individuals will need to bear in mind the "Statutory Residence Test", in effect from April 2013 onwards, which determines an individual's status based on time spent in the UK as well as"sufficient ties" (one of which is a 90 day test).

UK resident  taxpayers will also be affected by the amended PPR relief rules. Where a UK resident claims an offshore property as their main residence, they will now have to spend at least 90 nights in the property for that tax year to count towards the exempt period. This could affect the individual's tax residence status in that non UK jurisdiction.

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