Capital Gains Tax on non-resident landlords?

In March 2014, the government issued a consultation document entitled 'Implementing a capital gains tax (CGT) charge on non-residents'. This was following the chancellors announcement in Autumn 2013, that he wished to extend CGT to non-residents on the disposal of UK residential property as 'an important change to improve the fairness of the UK tax system'.

The consultation document explained that pension funds and other diversely owned collective investment funds were not intended to be brought in scope of the extension of CGT to non-residents. However, the government received several representations arguing that in many ways widely held companies are analogous to diversely held investment funds and therefore should be treated in a similar way.

The government wants to continue to encourage large-scale institutional investment into much needed development and supply of housing in the UK. In this context, and in recognition of the points raised in relation to the treatment of different types of diversely held entities, the government has revealed that it intends to introduce a form of “close company” test to limit the scope of the extension of CGT to non-residents. This should ensure that the extension of CGT will not apply where a disposal of UK property is made by diversely held institutional investor that holds UK residential property directly, or by one which invests indirectly through an arrangement that is not controlled by a few private investors.

The government recognises that the extension of CGT to non-residents is a significant reform and that it is important that individuals, advisors and companies have certainty about the scope and impacts of the regime as soon as possible. They have therefore agreed to publish a full response to the consultation in 'early Autumn 2014' which will provide much greater clarity on the issue and WSM will be analysing the implications for our non-resident clients as soon as this response is available.