08 Jan Changes to UK Capital Gains Tax – Gibraltar Taxpayers Beware!
The UK is reforming its Capital Gains Tax (“CGT”) regime to extend the charge to non-residents (which will obviously include persons and companies resident in Gibraltar) disposing of residential property in the UK, with draft legislation set to be published in the Finance Bill 2015. Currently, UK residents are subject to CGT when disposing of UK residential properties which are not their primary residence, whereas non-residents are not (the position is the same for companies). The objective of the new CGT regime is to introduce a system where the charge to CGT on UK residential property applies to everyone regardless of whether they reside in the UK, Gibraltar or anywhere else in the world.
The new CGT regime will exist alongside the Annual Tax on Enveloped Dwellings (“ATED”) related CGT charge, which was recently incepted to deter individuals from seeking to avoid CGT and stamp duty land tax on high value residential properties by acquiring and holding these in corporate ‘envelopes’ . In summary, the current ATED related CGT charge of 28% applies on gains realised following the disposal, by a “non-natural person” (i.e. a company), of a UK residential property valued at more than £2m (this will be lowered to £1m in April 2015 and £500k in April 2016). However, where part of the gain could potentially be subject to the new CGT and the ATED related CGT, the ATED related CGT will only apply.
The UK Government is still considering how it will bring Gibraltar companies within the UK tax system. It is intent on creating a level playing field for all and is apparently minded to avoid a situation where Gibraltar companies are subject to higher taxes than UK resident companies, as the latter would, for example, have access to allowances and reliefs. A tailor made approach is therefore being considered in relation to the tax treatment on gains made on the disposal of UK residential property by Gibraltar companies. This means that Gibraltar corporate ‘envelopes’ that are not genuine businesses disposing of UK residential property will be subject to the ATED related CGT charge at 28%, while other Gibraltar companies disposing of UK residential property will be subject to the tailored charge which will apply to gains arising from April 2015 (unfortunately the rate of the charge and the mechanism for calculating the gains applicable to the charge have yet to be confirmed).
Individual UK tax payers are currently subject to a 28% rate of CGT on the disposal of residential property if they are ‘higher-rate’ tax payers and 18% if they are ‘lower-rate’ tax payers. The UK Government’s objective is that UK and Gibraltar resident individuals are treated the same for the purposes of CGT. Therefore, where there is a charge to CGT payable, in order to calculate the rate of tax payable, Gibraltar residents will be required to declare their UK income so the appropriate rate of CGT tax can be applied to their relevant gains. It is the UK Government’s intention that the current annual exemption available to all individual UK taxpayers will be extended to Gibraltar resident individuals who are subject to CGT. However, while private residence relief is available to individual UK taxpayers ensuring that CGT is not payable on gains accrued on properties which are their main residence, this exemption will only be extended to Gibraltar residents in very limited circumstances, as it is unlikely that a UK residence will be the main residence of a Gibraltar resident.
Gibraltar trustees will be subject to CGT on the gains that they make on disposals of UK residential property in the same way that trustees deemed to be UK resident are currently charged under the current regime. While the UK Government recognises that assets are often owned through trusts for cultural and historic reasons, the primary objective of the new CGT regime is to ensure comparable treatment between UK resident and non-resident entities and, therefore, it intends to extend the new CGT regime to all types of non-resident trusts falling within the scope of the tax, in order that, from a CGT perspective, resident and non-resident trusts are treated equally.
The information in this publication is for general information purposes only and does not constitute professional advice, legal or otherwise and does not intend to be comprehensive. Triay & Triay does not accept responsibility for any loss that may arise from accessing or relying upon the information contained in this publication.
Review Your Arrangements
These latest proposed changes are expected to come into effect in the UK in April 2015 and if you own UK residential property, whether personally or through a Gibraltar company or trust, this is a prudent time to review your arrangements and tax planning strategies.
For further information please do not hesitate to contact Alan Buchanan or John Virgo of our Corporate Team on:
T: +350 200 72020