On 3 December 2014, the Chancellor delivered his 2014 Autumn Statement. There are some unpleasant surprises for non residents who will have to pay Capital Gains Tax on residential property.
1. Capital Gains Tax for Non-Residents Owning UK Residential Property
Non-residents who own residential property in the UK will be liable to Capital Gains Tax.
The charge will apply to disposals of UK residential property; that is property suitable for use as a dwelling. There will be an exemption for certain large scale institutional investment, subject to passing a “narrowly controlled company test” that will work alongside a “genuine diversity of ownership” test.
This new charge will not change anything to the existing ATED regime (for offshore companies owning UK residential property in effect for own use/ use of connected parties), but it will only apply to properties that are not caught by ATED.
CGT will be not be due to the amount of the gain relating to periods prior to April 2015 through a system of rebasing or time-apportionment of the whole gain.
The rate will be the same as the CGT rates for UK individuals (18% or 28%, depending on the person’s total UK income & chargeable gains for the tax year, with an annual exemption). The rate for companies will be the same as for UK companies (currently 20%).
2. The Annual Tax on Enveloped Dwellings (ATED) is maintained
The ATED regime applies to non-resident companies owning UK residential property which is not let out to third parties but which is or can be used by the owner of the company or peoplea associated to him, rather than being let out to third parties.
The ATED capital gains tax rate is higher : 28% and will increase by 50% above inflation for residential properties worth more than £2million for the chargeable period 1 April 2015 to 31 March 2016.
3. Non Doms : the Remittance Basis Charge Increases
Individuals resident in the UK but not domiciled in the UK can pay tax on the “remittance basis”. This means that they do not pay tax on foreign income/ gains, provided that they do not bring that income or these gains to the UK (directly or indirectly).
Non doms who have been UK resident for 7 out of the last 9 years pay a £30,000 tax charge (“the remittance basis charge”) and non-doms who have been UK resident for 12 out of the last 14 years pay a charge of £50,000. That tax will go up from £50,000 to £60,000. A charge of £90,000 will be introduced for individuals who have been UK resident for 17 of the last 20 years.
4. Base Erosion and Profit Shifting (BEPS)
A new tax will be introduced to counter the use of aggressive tax planning techniques by multinational enterprises to divert profits from the UK. This “Diverted Profits Tax” will be applied at a rate of 25% from 1 April 2015.
The UK wants to implement the OECD model for country-by-country reporting. Multinational enterprises will have to provide information on their global allocation of profits and taxes paid, as well as indicators of economic activity in a country.