Yesterday's unwelcome announcements on the capital gains tax changes to residential property may not be as 'fair' to the British taxpayer as was proclaimed by the Chancellor during his Autumn Statement, say London Chartered accountants Blick Rothenberg LLP.
While extending capital gains tax to non-resident individuals is 'fairness', according to George Osborne, halving the exemption period for main UK residence relief is expected to generate almost three times as much tax revenue.
Nimesh Shah, a tax manager with the firm said: "This does not seem very 'fair' for UK taxpayers. The Government estimates that halving the final period exemption will raise £360 million over the next five years, whilst extending capital gains tax to non-residents will raise only £125 million. These figures have come from the Government's own fiscal impact assessment."
Halving the exemption period for main residence relief will affect UK resident tax payers selling a property, which was previously their main residence after 5th April 2014.
Nimesh added: "There will no doubt be a flurry of house sales by UK resident taxpayers before 6th April 2014 for those properties that have been owner unoccupied for more than 18 months. It doesn't give people much time to market their property for sale, instruct solicitors and ultimately sell their property.
"Also, people who have two homes on a temporary basis (because, for example have moved into a new home as a result of a job relocation or family reasons) will have to walk the tightrope between selling their old property early to mitigate an unwelcome capital gains tax charge and paying any early mortgage redemption penalty in the process, particularly if they are on a fixed rate.
Nimesh said: "At least non-residents have until April 2015 to plan for the sale of their residential properties to mitigate the new capital gains tax charge. This is mainly because the Government rightly wants to consult on this new tax to accommodate it into the existing extensive capital gains tax legislation (recently made more complicated by the introduction of a capital gains tax charge for valuable residential properties owned by companies.) It will be difficult for the Government to make this new tax fit with the existing provisions so will require careful thought and consultation.
"We expect there will be a further wave of property sales before April 2015 by non-residents wanting mitigate the tax charge. However, looking more closely at the Government's estimate of tax figures, they only expect to raise £15 million in the first year of the charge which suggests that there will be a form of rebasing of property values. This must be the case because to be 'fair' tax should not be retrospective.
"The latest changes will no doubt make non-UK residents think carefully and plan accordingly before investing in the UK/London residential property market."