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Capital gains tax hit for foreign investors

Advisers await consultation paper on how HMRC will chase expats for payment

5 December 2013

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Overseas investors who dispose of UK residential property will be subject to capital gains tax with effect from April 2015 with a period of consultation to begin early this year, George Osborne confirmed in today's Autumn Statement.

Following the announcement, Fiona Smith, head of private client at Forsters, said it was "likely to be a popular move with the electorate, but will cause alarm from some who believe London will see a dramatic drop in offshore wealth entering the market".

"Many investors may well pause to assess the impact of today's announcement, but on balance, London is likely to remain an attractive option for offshore investors. As we have seen with previous tax changes, these amendments help to clarify and tighten existing laws, bringing London more in line with its major competitors on the world stage in terms of tax. London remains a reliable and stable market," she said.

Osborne also announced changes to CGT principal private residence relief will take effect from April 2014. The current rules automatically treat the final 36 months of property ownership as a period of owner-occupation irrespective of the facts, provided that the property has been the taxpayer's residence at some point.

But this final exemption period will be reduced to 18 months from 6 April 2014.

The annual CGT exempt amount will be £11,000 for 2014 to 2015 and £11,100 for 2015 to 2016 and subsequent years.

Autumn Statement: what you're saying

'No nonsense', says Richard Jordan, partner at Thomas Eggar

"From the point of view of the tax professionals there are no game changers in here. Certainly no revenue raisers.  What it represents is a tightening of the screws for the tax payers. The attack on non-residents owning London property is delayed, which allows sensibly for time for the market to absorb the proposed changes, rather than shocking it with an immediate change which may have had an instant impact on UK property values.

“Not only is he (rightly) tidying up a few loose ends, he is chipping away at some of the 'freebies', such as having the last three years of home ownership free from capital gains tax even if you do not live in the home. The big twist of the screw is ‘follower penalties’. 

“The intention is to put HMRC in the driving seat by allowing them to declare court victories and tax others accordingly until proven otherwise.  No one tax case is ever the same and the technicians will have plenty to say about this.  It is aggressive from HMRC but it neatly captures the general theme of today's announcement.  It has a feel of 'no more nonsense' about it.”   

 

'Hardly joined-up thinking', says Andrew Sneddon, head of tax at Trowers & Hamlins

"The new [capital gains tax for foreign investors] charge will apply 'from April 2015' so hopefully it will only apply to gains accruing as from then.

"This is an extension of the tax attack on high value UK homes which began in the 2012 Budget with the 15 per cent rate of stamp duty land tax (SDLT) and continued this year with the introduction of the annual tax on enveloped dwellings (ATED) and capital gains tax (CGT) for many company-owned homes. Unfortunately, it would appear to affect individuals who 'de-envelope' their homes to avoid the cost of ATED and ATED-related CGT, which is hardly joined-up thinking.

"A consultation on how best to introduce this will be published in early 2014. Hopefully, this will be limited to bringing individuals within the scope of CGT and will not involve a reconsideration of the existing reliefs, such as those available to companies which own high-value residential properties in the UK for business purposes. It is unclear whether there will be any reliefs available to people affected by the change and whether it will apply to all properties and not just to properties worth more than £2m.

"This is yet another attack on wealthy foreigners who, by the way, do not vote, and there must be a concern that this will be a further disincentive to invest in the UK."

 

'Less draconian than anticipated', says Dominic O’Connell, head of tax, trust and estate planning at Coutts

"George Osborne announced the 'largest package of measures to tackle tax avoidance, tax evasion, fraud and error' in this parliament, which aims to raise more than £9bn over the next five years. As ever, the devil will lie in the detail although the targeted sum is surprisingly significant, which straightaway suggests it would involve quite a few measures.

"We have cautioned before that measures aimed at tackling tax evasion and fraud need to be very well crafted so that they don’t inadvertently catch reasonable, non-aggressive tax planning, although the likely breadth of the measures could suggest that some ‘collateral damage’ might result from the Chancellor’s plans.

"Possibly the biggest headline-grabber from the statement was that from April 2015, capital gains tax will be charged on future gains made by non-residents who sell UK residential property. It was largely expected that the Chancellor would target top-end property in the Autumn Statement, and the move is less draconian than might have been anticipated. It might even come as a relief to some.

"The important point to note is that this tax will apply to 'future gains' – otherwise it would have risked being retrospective and potentially too complex. This does though mean it is unlikely to have much impact on the tax take in the short term. It could though act as a disincentive to potential overseas investors in UK property.

"The much-heralded tax allowance to incentivise marriage materialised as a new transferable tax allowance for married couples from April 2015. Available to all basic rate taxpayers, it will allow people to transfer £1,000 of their personal allowance to their wife, husband, or civil partner. I remain healthily cynical. This is a relatively small amount and I believe there could be better ways to offer tax breaks to the lower paid."

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