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Changes to Capital Gains Tax Affecting Foreign Investors

Tuesday, 3rd March 2015

Categories: Property Prices Sales

Author: Justin Burns

Over the last couple of weeks we’ve begun to receive calls from overseas investors or their agents concerned about the change to Capital Gains Tax which is due to come in to force on 6th April this year.

Announcing the change in his 2013 Autumn Statement, George Osborne, UK Chancellor of the Exchequer said “It is not right that those who live in this country pay Capital Gains Tax when they sell a home that is not their main residence, but those who don’t live here do not … so from April 2015 we will introduce Capital Gains Tax on future gains made by non-residents who sell residential property here in the UK.” The change will not be applied retrospectively so the tax will only be paid on gains accrued on or after the introduction date.

The charge will apply to gains made by individuals, trustees and closely held non-resident companies (i.e. a company that has a small group of controlling shareholders) and funds (to the extent that such gains are not caught by the ATED charge). The rates for individuals will be either 18% or 28% according to their status as basic or higher/additional rate taxpayers respectively. The rate for trustees will be 28%.

When it comes to calcuating gains the taxpayer will have the option to either re-value their property as at 5th April 2015 or time aportion the gain i.e. if a property was owned for 3 years prior to the rule change and for 3 years afterwards half of any capital gain could be apportioned to the later period.

The calls we’ve received have mainly been from the agents of foreign property owners wanting to arrange a valuation of their client’s property (or portfolio of properties) as of 6th April. The benefit being that a valuation carried out at around that date is more likely to be accepted by the District Valuer than one carried out retrospectively several years in the future when the property is sold. Knowing the current value will also be useful in deciding whether to adopt the re-based valuation or time apportioned method when calculating any gain.

There would also be a saving in fees as we would generally have to spend longer (and therefore charge more) for a valuation undertaken retrospectively compared to one undertaken close to the valuation date. Economies of scale when valuing a portfolio of properties as opposed to a one-off would also reduce the average fee per property.