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Introduction of capital gains tax for foreign property investors
The UK Government has announced that non-residents who own residential property in the UK will in future pay capital gains tax on sales. Taxand UK takes a look at this update.
In a departure from the longstanding rule that non-residents who own real estate in the UK do not pay capital gains tax on its disposal, the Government has announced that this will no longer be the case from April 2015 where the real estate concerned is residential. The new tax will apply whether the property is leased out or not, but the tax basis will be market value in April 2015 (or cost if acquired after that date), so historic gains will be protected.
This change of law has been prompted by the huge influx of foreign, mainly private, investors into the London residential market, and is designed to put them on an equal footing with UK residents. However, in consultations on the detail of the legislation, the Government has recognised that it is trying to encourage more institutional investment in private rented housing, and much of this is international. It has therefore accepted that some widely held funds and other investors will be exempted from the charge.
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The UK is unusual in not taxing the capital gains of non-residents on the disposition of UK real estate, and this is a major change of policy driven largely by immediate political concerns. Investors and other owners of UK real estate will need to examine the new rules carefully to understand how they will apply. The scope of the exemptions in particular will be important if the tax is ever extended to other classes of real estate.
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