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Why should non-doms and non-residents avoid Inheritance Tax and Capital Gains Tax (CGT)?
As is well known, the Government has been attacking residential property ownership for years now. It started with the non-residents and non-doms, who now suffer the ATED charge, IHT charges on enveloped dwellings, and CGT on the sale of their UK residential property. While these changes were hard-hitting at the time, in hindsight the IHT and CGT seem fair – why should non-doms and non-residents avoid IHT and CGT?
What is far more controversial are the changes to the UK letting scene. The restriction of interest relief is hitting landlords hard, and if you couple this with a penal rate of CGT on residential property (28% rather than 20%), the reduction in Private Residence Relief (PRR) (from the last 36 months down to the last 9 months) and the abolition of lettings relief you are left with a situation where landlords have uneconomical portfolios and are unable to get out of the buy-to-let market efficiently. And the situation is about to get worse.
From 6th April 2020, a capital gains tax payment on account payable on the sale of residential property must be paid within 30 days of completion. This is a drastic change from the current system, under which the payment date is the 31st January following the tax year-end. This could be anything from 10 months (for a sale in March) to 22 months (for a sale in April).
Further, the amount of capital gains tax that is payable within 30 days may be excessive. This tax payment is just a payment on account, and it can only take into transactions that have happened up to the date of sale. So, if you intend to sell assets at a loss or intend to make EIS investments to offset the capital gains, you will need to pay excessive capital gains tax and then claim a refund later.
There is also the issue of solicitors being reluctant to be involved in advising their clients of the requirement to file these CGT Returns. Non-residents have been required to file these CGT Returns within 30 days for some time, and over the last few years we have seen countless occasions where late filing penalties have been incurred because solicitors have failed to advise.
As always with these things, advice is essential. If you are considering selling or gifting properties – you not only need to know the final tax position and when that tax is due, but also the interim position and when that tax is due.