Money Matters (Part 10) - Changes to Private Residency Rules

A while ago we published a blog post on the changes to private residency relief. Since then, it was recently announced that the rules are set to change again to prevent non-residents nominating their UK residence as their main residence, allowing them to avoid their UK tax liability. The change forms part of a reform to extend Capital Gains Tax to disposals of UK residential property by non-residents. We’ve got more information on this hot topic below.

Background

Earlier this year it was announced that Capital Gains Tax was to be extended, so that non-residents are charged the tax when disposing of a property that is not their main residence in the same way as UK residents.

What are the new changes?

There will now be a new rule that will restrict the circumstances when an overseas residence (that is, a residence in a jurisdiction where the person is not tax resident) can benefit from PRR.

The changes will apply to both a UK tax resident disposing of a residence in another country and a non-UK tax resident disposing of a UK residence.

From April 2015 a person’s residence will only be eligible for PRR for a tax year if it meets one of two conditions: 

·      Either the person making the disposal was tax resident in the same country as the property for that tax year;

·      Or the person spent at least 90 days in that property (or across all of the persons’ properties where they have multiple properties in a country in which they are not tax resident) in that tax year.

Non-residents will be able to nominate that a UK property meeting the 90-day rule is their only or main residence for a tax year at the time of disposal. Access to PRR will also be available for trusts if the beneficiary is non-UK resident on the same basis.

How does this apply to the rate of tax?

Non-resident individuals will have access to the annual exempt amount of taxable gains, in line with UK residents.

The rate of tax for non-resident individuals will be the same as the CGT rates for UK individuals, currently 18% or 28% depending on the person’s total UK income and chargeable gains for the tax year.

How does this relate to prior situations?

The extended CGT charge for a non-resident disposing of UK residential property will not apply to the amount of gain relating to periods prior to April 2015. The government will allow either rebasing to 5 April 2015 or a time-apportionment of the whole gain, in most cases. Individuals and companies will need to report to HMRC within 30 days of the date of completion that a disposal has been made and make a payment of the tax that is due.

Where can I go if I have further questions?

The staff here at Finnies are experts in this field and would be happy to answer any questions you may have. Feel free to email info@finnies.org.uk or call us on 01482 861919.