Back in December the Chancellor announced that he would consult on extending capital gains tax (CGT) to non UK-residents owning residential property in the UK. At the moment, non-UK residents do not pay UK tax on any gains they make on the sale of UK properties. This gives them an unfair advantage and is believed to drive up property prices, particularly in London. Well done George, for spotting this and acting to put it right.
However, it seems that this will come at a cost. A Government document released last week suggests that if this goes ahead some fundamental changes will be required to principal private residence (PPR) relief. And that these will effect everyone, not just non-residents. Now this is important as PPR is what stops you having to pay tax on any profit you make when you sell your home. If the Government rolls back on PPR then this will hit UK taxpayers hard.
Based on the information provided so far, it looks like the changes will effect those individuals with more than one residence. At the moment, someone in that position can elect to treat one of their residences as their PPR, effectively removing that residence from CGT. This works well as the taxpayer can choose which residence to go for, and so can reduce his or her tax bill by selecting the one standing at the biggest profit. Going forward, it may be that this election is removed so that the residence which the individual actually uses as his PPR benefits from PPR.
It is early days with this one as any changes made will not take effect until April 2015. However, anyone with more than one residence (e.g. a holiday cottage or a flat in the city) would be advised to keep a close eye on this as it develops).