A refresher on the Capital Gains Tax regime
In simple terms capital gains tax (CGT) is due on the increase in value of an asset.
Until relatively recently only a small proportion of the sales of residential property in the UK would have been subject to CGT. Several changes have been introduced which have widened the net and although there has been considerable discussion of the measures they can easily be overlooked.
Historically, only individuals and companies resident in the UK were liable to CGT. However this was widened to certain disposals by non UK companies after 6th April 2013. The disposals caught by the changes were those where the company was subject to the Annual Tax on Enveloped Dwellings and this is known as ATEDCGT. This is charged at a rate of 28%.
From 6th April 2015 all disposals of UK residential property by non residents are subject to the tax and this is known as NRCGT. The rates for this are 18% and 28% for individuals and 20% for companies. A company could be liable for both ATEDCGT and NRCGT and in this case only the ATEDCGT would be due.
There are several ways of calculating the gain for NRCGT and it is possible to choose the method which results in the lowest tax. Tax returns need to be filed with HMRC within 30 days of the conveyance and there are penalties for missing this deadline.
The third change which has led to additional CGT being due is a restriction of the relief on an individual’s main residence. Where a person owns more than one property which has been their main residence they are entitled to relief for the periods when it was actually their main residence plus the final period of ownership even if they have moved out by then. For disposals before 6th April 2014 the final exempt period was 36 months but this has been reduced to 18 months.
There are many variables when looking at CGT. Who is liable for it, the way the gain is calculated and even the rate applicable.
However with careful planning and making maximum use of all available reliefs the final liability is not always as big a surprise as anticipated.
The property investment sector was disappointed to note that the welcome changes to the rates of CGT announced in the Budget 2016 do not apply to gains on disposals of residential property.