CIOT logo

CIOT: More complexities ahead on UK residential property

CIOT: More complexities ahead on UK residential property

The Chartered Institute of Taxation (CIOT) is warning that ‘constant tinkering’ with tax rules around UK residential property and non-residents risks damaging the UK’s reputation.

From April 2015 a capital gains tax (CGT) charge will be introduced on future gains made by non-UK residents disposing of UK residential property. A consultation on how best to introduce this will be published in early 2014.

Recent press speculation on the possible introduction of the CGT charge on non-residents led to the CIOT to call for timely consultation so the announcement of a consultation early in 2014 on the implementation of the new charge, and the fact that changes will not take effect until April 2015 is welcome.

Stephen Coleclough, President of the CIOT, said:

"It is unfortunate that more piecemeal  changes are being made to the CGT building blocks so soon after the extension of the CGT charge (from 6 April 2013) to companies and other entities that dispose of high value residential property falling with within the new Annual Tax on Enveloped Property (ATED). The CIOT hopes that the legislation in this area will now have a chance to settle down as constant tinkering damages the UK’s reputation.

“The complex issues surrounding the implementation of the ATED and the related CGT charge on ATED-related gains provide abundant evidence of the difficulties in this area, including enforcement, interaction with existing legislation, EU issues and the need for carefully considered transitional measures. So we are pleased to see that there will be a consultation, presumably in line with the Government’s Tax Consultation Framework.

“One of the vital and welcome pieces of the jigsaw is that it will apply to future gains arising from the date the charge is introduced, rather than gains since acquisition. The taxation of historic gains would have been tantamount to a retrospective tax change and would have brought significant compliance difficulties for those who have not kept CGT base cost records (particularly for improvement expenditure).

“The current CGT rules allow for relief for properties which are used as an individual's main residence subject to an election where an individual owns more than one residence.  Assuming that non-residents will be allowed to claim this relief, the scope of the new charge may be fairly limited. The alternative of not allowing principal private residence relief may give rise to all sorts of issues, not least in relation to EU rules.”

Notes for editors

1.       Individuals are subject to Capital Gains Tax (CGT)  on the gain made on the disposal of an asset.  Trustees and personal representatives are also subject to CGT.  For companies gains are included in the company's profits for the purposes of corporation tax. The basic rate of CGT is 18% with a higher rate of 28% for higher and additional rate taxpayers, trustees and personal representatives.

2.       Gains are subject to CGT if the individual is resident in the UK for the year of assessment when the gain arises. Currently, for non- UK residents CGT only arises if the taxpayer is carrying on a trade, profession or vocation in the UK through a branch or agency. There are also anti-avoidance rules aimed at taxing gains made by UK residents who become temporarily non- resident and at  UK resident shareholders in  non- resident companies where chargeable gains accrue to the non- resident company.

3.       There is a relief from CGT, principal private residence relief (PPR) (sometimes called main residence relief) on the disposal of an individual's only or main residence.

4.       The Annual Tax on Enveloped Dwellings came into effect on 6 April 2013 for high value residential property (£2m and above) owned by companies, partnerships with a corporate partner and collective investment schemes (collectively known as ‘non-natural persons’). Such non-natural persons were also made subject to CGT on the disposal of high value residential property within the charge to ATED. However, CGT on ATED-related gains is not restricted to UK resident entities but applies equally to non-resident and resident entities.

5.       The Chartered Institute of Taxation

The Chartered Institute of Taxation (CIOT) is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries.  The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.