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CGT And Non Residents Consultation Update
Tuesday 26th August 2014
HMRC’s consultation in connection with its proposals announced in the 2013 Autumn Statement to charge CGT on gains made by non residents disposing of UK residential property from April 2015 has recently closed and minutes from the working groups have been published.
The government has indicated that it believes it is important to align the tax treatment of UK and non residents who make gains on UK property. However, it recognises that this aim needs to be balanced against other objectives including the introduction of a simple and sustainable regime.
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. In particular, widely held non resident collective investment schemes should not be affected by the CGT charge. However, HMRC 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 states that it 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, it is proposed that a form of “close company” test to limit the scope of the extension of CGT to non residents will be introduced. 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. There are plans to draw on existing legislation to achieve this as well as recognising many institutional investors may use partnerships as part of the investment structure and will therefore it will be necessary to consider options to identify the ultimate investors in such structures.
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. A full response to the consultation will be published in early Autumn 2014.
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