Following the Autumn Budget 2017 the government issued a consultation on Taxing gains made by non-residents on UK immovable property.
The consultation proposes the introduction of capital gains tax (CGT) on commercial property held by non-residents from April 2019, CGT on residential property held by non-residents was introduced with effect from April 2015. Prior to that CGT has not been charged on immoveable property held by non-residents, this change in policy brings the UK into line with most other countries and the fundamental principle is not objectionable. The consultation also looks at the interaction of annual tax on enveloped dwellings (ATED) related CGT and the existing non-resident CGT (NRCGT). Our response is published as ICAEW Rep 23/18.
We are concerned this is another add-on and that there is no coherent policy running through the taxation of real estate; time needs to be taken to simplify the entire regime and ensure it all meshes together. This comment applies not just to non-residents and CGT but also to residents and the entire tax regime for property which has long been in need of a complete review. Too much of the tax regime for property has been built on a piecemeal basis making it difficult for taxpayers to comply despite the best will in the world.
It is our view that ATED related CGT should be withdrawn from when this new charge is introduced as all gains on real estate will be covered by existing and new legislation (current NRCGT and extended NRCGT). Retaining ATED related CGT for gains post 5 April 2019 would result in an extremely complicated system which we do not believe is justified.
Ideally to simplify the rules the new regime would apply to all disposals after the effective date (6 April 2019 per the consultation). That is, for a gain on an asset acquired prior to then there would be no need to apply more than the current NRCGT and the proposed extended NRCGT. Government may however not want to withdraw ATED related CGT for gains it covered prior to when these new provisions come in. This would be unfortunate given the complexity of retaining ATED related CGT for this category of effected assets. If it is to be retained then, in order to help taxpayers in situations where more than one set of provisions apply, HMRC guidance should be produced with plenty of examples.
It is already proposed to move companies owning property into the corporate tax regime away from the income tax regime from April 2020, it would make more sense to coordinate the two changes in April 2020 rather than introduce these CGT changes in 2019. Companies will find they are in the non-resident CGT regime for one year and then into the corporate tax regime for gains in the next year. Taking an extra year to implement the changes should also result in better formulated legislation.
The opportunity should be taken to review the current procedure for non-residents to report their disposals. The existing system for non-residents to report their disposal of residential property was described in the first tier tribunal by the judge in less than complimentary terms as follows: “The arguments advanced by HMRC about knowledge of the law are little short of preposterous. To say that information about NRCGT returns is “well within the public domain”, as if the public domain had boundaries where one could tell whether something was just in it or well within it or completely within it, is also claptrap.” (see para 176 of Rachel McGreevy and HMRC TC/2017/04089).