CGT on overseas property

The Chartered Institute of Taxation (CIOT) says Government plans to introduce a new capital gains tax (CGT) on UK properties sold by non-residents will overlap with current CGT rules on the selling of UK residential properties and complicate the existing CGT system further report Harris & Co accountants Northampton #accountantsnorthamptonm

The CIOT had, earlier in May, voiced concerns over HMRC’s plans to withdraw the principal residence election for all taxpayers saying this could have a significant impact on UK residents with more than one property.

According to Patrick Stevens, CIOT Tax Policy Director, the proposal to implement the CGT charge on non-residents disposing UK residential propoerty is ‘understandable as the UK is unusual in not charging non-residents CGT. Similarly understandable is the Government’s wish to create a regime not at risk of abuse. However the way they are proposing to do this adds unnecessary complication to the tax system.’

He adds that ‘the regime governing the taxation of non-residents selling UK residential property could be simpler if the new CGT charge captured all such gains and took precedence over existing rules, thereby allowing the Government to remove more complicated elements of the existing parallel regimes’.

In its response to the Government’s consultation paper, Implementing a capital gains tax charge on non-residents, the CIOT say their concern is that the proposed new charge is likely to add to the costs and compliance burdens of residential property transactions for individuals and business.

The response document points out that the most effective method of importing simplicity into the CGT regime governing the taxation of non-residents owning UK residential property is for ATED-related CGT to be abolished altogether from April 2015, such that all acquisitions of UK residential property post April 2015 would be governed by the proposed new charge. In addition, it says thought needs to be given to the applicable rate of tax, as any rate differential in relation to the extended charge between a resident and non-resident is likely to breach EU law.

The CIOT also suggests that the Government look into a consistent definition of residential property, as past measures have resulted in situations where there are subtly different definitions which make it difficult to discern the underlying policy.

In terms of the delivery mechanism, the CIOT think that using the self – assessment process with the normal due dates is by far the preferable approach.

In light of the above, the CIOT is encouraging the Government to take a more holistic approach to the way residential property is taxed in the UK, rather than adopting piecemeal changes.