The Government recently issued a consultation entitled ‘Implementing a capital gains tax (CGT) charge on non-residents’. Now, if you are UK resident for CGT purposes, you might have formed the view, quite reasonably, that, in view of its title, you need not add the consultation to your pile of bedtime reading. Tut tut, how could you be so silly?! Buried deep within the consultation is a proposal which could also affect UK residents owning two or more residences. More on that below. First, here’s a quick summary of the main proposals in the consultation:
The Government recognises that it would be too easy for non residents to avoid CGT by using the current system of being able to elect which residence receives the benefit of CGT principal private residence relief (PPR). Currently individuals (whether resident or non resident) owning two or more residences have the ability to elect, within two years of acquiring a second residence (or by making certain changes within an existing portfolio of multiple residences), which residence will benefit from CGT PPR on future disposal. That election can also be ‘flipped’ (varied) between residences. The election need not be in favour of the residence in which the individual spends the most time – handy if the growth in value of the less inhabited residence (e.g. the London occasional pied-à-terre/‘buy-to-leave’) is likely to outstrip the growth in value of the property which is the main residence in actuality (think UK family seat in the country or the main family home abroad). Miss the two year deadline and by default PPR will apply to whichever residence is, as a matter of fact, the main residence (usually judged by reference to where most time is spent). Under the Government’s proposals, the ability to elect could be scrapped for everyone. Instead, it could become a question of fact as to which of the taxpayer’s residences (be they located in the UK or abroad) is the main residence, based on all the evidence. Alternatively, the Government is considering introducing fixed rules to determine a taxpayer’s main residence, which might involve less record keeping but could produce some arbitrary results. The days of ‘flipping’ properties (a tax planning technique made infamous, ironically, by various English Members of Parliament a few years ago) may be numbered. However, it will be a little while before we know for sure. The consultation closes on 20 June 2014.