Main residence election
The 2013 Autumn Statement contained details about the extension of capital gains tax (CGT) to non-residents when they dispose of residential property held in the UK, and the Government and have now issued a Consultation document entitled “Implementing a capital gains tax charge on non-residents”.
The main changes proposed aren’t a massive surprise as they reflect the way things work in most other countries, which is to charge tax based on the location of the property rather than the location of the seller. But the consultation document also contains a global proposal to alter the ability to elect which of several properties you own is your main residence, and thus exempt from CGT upon sale. The motivation behind this change is to remove the ability for a non-resident to simply elect the UK property as their main residence and therefore avoid UK tax entirely, so it is understandable and fair to make such a change. But it will also have a knock on effect on UK residents who own more than one property…
Under the current system you can elect, for any specific period, which property is your main residence and it will then quality for tax relief. The Consultation document sets out two ways the new rules could work:
- Remove the ability to elect which property is your main residence and instead determine it based upon the balance of evidence – where does any immediate family live, where is mail sent, what address is used for electoral roll purposes etc. This is the way the law currently works when someone has not made an election and there is any dispute.
- Replace the ability to elect which property is your main residence with a fixed rule – for example which property the person has been present in for the most days in the tax year.
Both of these suggestions will require additional records to be maintained by the taxpayer to support their case, which could be quite onerous if they regularly swap between two or more properties. The Consultation does mention the possibility of allowing the current election process to be retained in some circumstances, but unfortunately does not expand on what those circumstances may be.
How these changes will work in practice has not yet been disclosed, but the Institute of Chartered Accountants in England & Wales have promised to make strong representations as they foresee many difficulties is establishing which property is a taxpayer’s main residence in various circumstances.
The slight saving grace for non-residents is that if they do have to pay CGT on their UK property, which will likely be collected via a withholding tax mechanism, then they will also become entitled to an Annual CGT Allowance, reducing the gain by £10,900. CGT rates will then apply at the normal 18% or 28%.
Due to the complexity of the proposed changes they won’t be effective until April 2015, but the Consultation deadline is 20th June, so we’ll update when we know more. Read the full document, including the changes discussed above in section three.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.