Non-Residents & Capital Gains Tax: All Change

Last week the Government issued its response to the consultation document “Implementing a capital gains tax charge on non-residents” issued in March. This had set out the basis on which tax would be charged on gains realised by offshore investors in UK residential property. After the Autumn Statement today we can now see how the law reflects those intentions.

Property companies

The property industry will welcome clarification that the Government does not intend to broaden the scope of the charge and apply CGT to disposals of non-residential property. There was concern that taxing gains of offshore investors in residential property could be the beginning of a change of policy but it seems that offshore investors’ holdings of commercial, leisure, student accommodation and care homes will not suffer tax on gains.

Individuals and their homes

The proposal to abolish the 'main residence election' in favour of highly complex fact-based tests to decide which property would benefit from private residence relief – PRR - (where a person is not subject to tax on gains when they sell their  home) - has been scrapped. Instead, non-residents investing in UK residential property and UK residents investing in non-UK property have to meet an occupation test.

It is much simpler.  If you are in your home for 90 midnights in a tax year you can nominate that property to benefit from the private residence relief. Importantly, there will be no change from the current rules for individuals who are UK resident and own only UK properties.

HMRC backtrack on Pilot Trusts

HMRC have announced their decision not to introduce a single settlement nil rate band for trusts created on or after 6 April 2014. This means that Advisers, like me, can breathe a sigh of relief that the state of limbo they have been in ever since the anti-forestalling measures were announced on 6 June this year should now be coming to an end and we will all be keen to review the anti-avoidance legislation once it has been released.

The current Association of Taxation President, Natalie Miller, said:

"This decision will be most welcomed by trustees and professional advisers. Many who responded to the consultation on the ‘Simplification of Trusts’, including the ATT, pointed out that the proposals being put forward did not represent a simplification at all but rather a ‘knee-jerk’ reaction to putting a stop to the use of pilot trusts."

As for my own views, most of you will know that I have been a great advocate of trusts for many years, not because of the tax benefits (of which there are actually startlingly few), but in the main because of the protection and control they can offer my clients over their families assets.  Therefore, it will come as no surprise that I am pleased that HMRC appear to have listened to the concerns of the professional bodies and their members and have instead decided to tackle the issue with specific anti-avoidance legislation aimed at the use of multiple trusts, rather than impose a system that would cause widespread complexity and confusion across the board. It will be interesting to see the content of the new anti-avoidance legislation once it has been released, as although we have won this battle on the ware is far from over!