CGT Changes and Conveyancing Risk: The 2014 Proposals

Historical article: This post records proposals and concerns discussed in April 2014. It is not a statement of current Capital Gains Tax rules or reporting deadlines.

Conveyancing at the higher end of the property market could bear the brunt of changes in capital gains tax (CGT) treatment of UK residential property sales to non-UK residents.

To the surprise  and dismay of many, the Government is proposing to remove the relief that allows second homeowners in the UK to elect, or flip, their primary residence for CGT purposes. The proposal covers both resident and non-resident homeowners.

Sara Maccallum, a partner and the head of the Private Client and Tax Team at law firm Boodle Hatfield, wrote , “Non-UK corporate owners of residential property will be subject to a two-tier approach. Those who pay the ATED will pay the related CGT charge on all or part of the gain at the usual rate of 28%.  In contrast, all other non-resident companies will be subject to a tailored CGT charge at an as yet unknown rate on all gains arising on the disposal of UK residential properties, including those which are owned as part of a property business.”

How the proposed CGT collection process could affect conveyancing

The brunt to beat is in how the Government is to collect the tax, a form of withholding tax to operate alongside an option to self-assess. Full details are yet to be published, but the principle is that the seller of a property would be identified as a non-resident and then would have an option to pay the actual tax due or have the tax levied by withholding (carried out by the solicitor acting for the purchaser).

The tax would then have to be paid within 30 days of completion.

Clearly more details are needed but it appears that this puts the onus on the purchaser’s solicitors to retain monies – one can only imagine the complex negotiations surrounding the terms.

Questions about liability and the conveyancer’s role

Still to be answered in this emerging matter:

• Where does the liability rest?
• Is it with the seller, purchaser or purchaser’s lawyers?
• Who calculates the tax?
• If tax is due and not paid does not get paid will the revenue place a charge on the property in question? If so, I would imagine the lenders will be concerned as this could impact their security?
• Have the CML been consulted on this?
•  Is it possible that this new way of collecting tax will equally apply to affect UK residents (where CGT applies) just as much as non-residents?

“This will clearly be administratively burdensome for the purchaser’s solicitors and could further complicate the conveyancing process,” according to Sarah Maccallum

Solicitors are effectively being expected to police capital gains at no cost to Her Majesty’s Revenue and Customs.

Property tax changes and conveyancing risk

Whether it proves to be administratively burdensome or an absolute nightmare, only time will tell.