CGT to be payable on non UK residents' disposals of UK residential property

Author: Richard Kaufman, Helena Luckhurst

In the 2013 Autumn Statement, the Chancellor announced that from April 2015, Capital Gains Tax (CGT) will apply to gains made on disposals of residential property in the UK by non UK residents as well as UK residents. The government has since issued a consultation on the subject in which it welcomes views on how this new tax charge will be implemented.

Why is the government extending the CGT charge to non residents?

The government hopes to bring the UK into line with other countries, where CGT is payable on the basis of the location of the residential property rather than the location of the person selling the property. There is also concern over an imbalance in treatment between UK residents and non UK residents.

What does “residential property” mean?

The definition of residential property is broader than one might think: it is likely to cover all property that is used or is suitable for use as a dwelling, which includes investment properties and second homes.

The government does not intend to extend the CGT charge to communal residential property such as boarding schools and nursing homes, care homes and other communal accommodation such as barracks. However, residential accommodation for students will be subject to the charge except where it is part of a hall of residence attached to an institution.

Will the charge only affect individuals?

No. If a partnership disposes of UK residential property, the CGT charge will be extended to those partners who are non UK resident as well as UK resident partners. The government also intends this same rule to apply to non UK resident trustees.

Some non UK residents own UK residential property through buying shares or units in a fund; the government has indicated that such property will not be subject to the charge. However, a “Genuine Diversity of Ownership” test will be applied to funds to assess their liability to CGT. The test is unclear at this stage but the government believes that funds which have a genuine diversity of ownership should not be subject to the CGT charge.

It is anticipated that the CGT charge will be extended to UK residential property sold by non resident corporate envelopes, including those properties worth less than £500,000 which will not be subject to the Annual Tax on Enveloped Dwellings (ATED) charge.

How much will the charge be?

For individuals, the rate of tax will mirror the higher and lower rates of tax for UK residents (up to 28% or 18% respectively), although the government has not yet confirmed the rate applicable to companies and other non resident entities. This could be the Corporation Tax rate of 20%.

Will non UK residents benefit from any reliefs?

UK residents are currently able to benefit from private residence relief (PRR) when disposing of their main residence, which means that they do not have to pay CGT on the disposal. This relief will also be made available to non UK residents in certain circumstances. The CGT annual exempt amount (currently £11,000) will also apply to non UK residents who are individuals. It is unlikely that either PRR or the annual exempt amount will apply to companies or other non resident entities. On the other hand, such entities may well benefit from paying the lower, Corporation Tax rate.

How will the new rules work in practice?

The government appreciates the difficulties which may arise when collecting CGT from non UK residents. Its preference is, therefore, to introduce a withholding tax which would operate alongside an option to self-report the tax due, in line with other countries such as Spain, Australia and Canada.

The consultation is due to end on 20 June 2014.

Richard Kaufman, Partner, Fladgate LLP (

Helena Luckhurst, Partner, Fladgate LLP (

Emma Hurrell, Solicitor, Fladgate LLP (

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