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Unlike the capital gains tax regimes applicable to most countries internationally which charge tax on gains made on properties sited within the relevant domestic jurisdiction which disposed of by their owners, the UK at present does not charge capital gains tax (CGT).The Government announced in December 2012 that it would extend capital gains tax to disposals of UK residential property by non-UK residents from 6 April 2015. A consultation was held in 2014, the results of which have recently been published. Draft legislation has been published in the Finance Bill 2015.The new tax will apply to residential property, which will be defined as property suitable for use as a "dwelling". Communal residential property, such as a nurses' home will generally be excluded from the charge.The charge will apply mainly to non-resident individuals, non-resident trustees, personal representatives of a non-resident deceased person and some non-resident companies which dispose of UK residential property.The rate of tax for non-resident individuals will be the same as the CGT rates for UK individuals, with the benefit of the CGT annual exemption ( �11,100 for 2015/2016).Disposals of UK residential property made by diversely held institutional investors will not be subject to the charge, as are developers and property traders who account for their UK residential property as trading stock.The new capital gains tax applies to individuals or groups of individuals. A "narrowly controlled company test" will operate alongside a "genuine diversity of ownership test" to distinguish institutional owners from private owners. This will ensure that non-resident individuals and closely connected parties who make disposals of UK residential property will be subject to the tax, while institutional investors will not be caught.The new capital gains tax is to operate alongside ATED so that corporate "envelopes" that are not carrying on a genuine business will be subject to the ATED-related CGT charge at 28%. If the company disposing of UK residential property does not fall within the ATED regime, it will be subject to the extended capital gains tax charge. The corporate rate will apply to such gains of companies.There will be an opportunity to exercise a rebasing election so that only post 5 April 2015 gains will be chargeable. Elections to time apportion the gain over the ownership of the property or to compute the gain by reference to the gain made over whole period of ownership will be available.There will be no requirement for tax to be withheld at source, but tax reporting and payment of the tax is to be completed within thirty days of the disposal.The application of the reformed rules on principal private residence (PPR) relief has also been clarified. The existing arrangement allowing a taxpayer to nominate his PPR will remain but the relief will not be available for properties in a jurisdiction where the taxpayer is not tax-resident. This will apply to disposals of both UK and foreign residential properties regardless of the vendor's residence. A "90 day rule" (by reference to occupation of the property at midnight on the relevant days) will apply in the application of the rules establishing PPR. Broadly, a property will not be capable of being treated as an individual's PPR for a tax year unless he or she has resided in the property for at least 90 days in the relevant years. For non-residents, elections to treat a residence as their PPR are to be made at the time of disposal.The new rules will include those in respect of trustees disposing of a dwelling which was used as a main residence of the beneficiary. Provided the beneficiary concerned meets the 90 day rule requirements, the UK or foreign dwelling being disposed of will qualify for PPR.James Wolfson's comments:It was inevitable that a new capital gains tax regime would apply to non-residents owning UK residential property. The new rules proposed for PPR will mean that some non-residents and their spouses may have to amend their plans for occupying the relevant dwelling as their main residence to keep within the rules allowing PPR. Their intentions in this regard, as appropriate, will have to be factored into the overall determination of their residence in the UK or elsewhere for the purposes of the statutory residence test and any associated planning.Whether or not the dwelling may qualify for PPR may be the determining factor as to whether the dwelling should be held directly by a trust or by the individual, as opposed to a company.For non-UK resident individuals wishing to invest in a specific residential property for investment or business purposes, a non-resident company should make the investment if the lower rate of corporation tax (20%) applies, rather than the higher CGT rate of 28%.In borderline scenarios where it is unclear as to whether the ATED regime should apply in respect of ATED related gains or the extended capital gains tax regime otherwise applies, or distinguishing closely held private dwellings from more diversely held properties held by institutional owners under the relevant tests, taking appropriate advice will be critical.In any event, non-resident vendors contemplating selling UK properties and non-resident investors considering purchasing UK properties in the current environment ought to take advice as the appropriate structuring of the transactions, either to mitigate the tax or to factor in the capital gains tax cost against the benefits of other planning, such as that to avoid inheritance tax.For further information and advice on this topic or about the services we offer, please contact James Wolfson on 01273 664084 or email james.wolfson@healys.com.