The extended Capital Gains Tax charge on UK property
What property is within the charge?
Until April 2019 when the rules were extended the position for residential property was as explained below.
The CGT charge applied to all directly held UK residential property. But it did not (until April 2019) apply to gains on the sale of share or units in a company or fund which owned UK residential property.
Certain types of communal residential property were excluded from the charge. These included: accommodation used as a children’s home; care homes for those in need because of (e.g.) old age or disability; communal accommodation for members of the armed forces; prisons and similar establishments; and Purpose Built Student Accommodation (PBSA).
PBSA was defined as:
- A building that is purpose built or converted for use by students, has at least 15 bedrooms and is actually used by students studying for a course; or
- Accommodation excluded from registration under Housing Act 2004 as (broadly) a hall of residence.
Houses that merely had rooms let out to students were within the charge.
Property which was in the process of being converted to a dwelling was within the charge, as was residential property sold “off plan” (i.e. before it has been built). Bare land and residential property being converted to commercial use was normally be regarded as non-residential and out with the scope of the charge.
What owners were liable?
The charge to CGT applied to all non-resident individuals, trustees and other persons holding UK residential property. Companies were within the charge only if they fall within a “narrowly controlled company test”. This broadly applied to companies controlled by five or fewer persons, unless one of those five persons was either a company which was not narrowly controlled or was a qualified institutional investor.
Qualified Institutional Investors (QIIs)
QIIs were exempt from the charge. A QII included pension funds for large numbers of people, sovereign wealth funds and large financial institutions, and also companies controlled by QIIs.
QII status also extended to a company which is a Collective Investment Scheme, provided it could show that it had genuinely widely marketed the fund to intended categories of investor for the five years prior to disposal (or period of ownership if shorter).
The broad effect of the above is that for companies, the CGT charge applied mainly to family and private groups held by relatively small numbers of people.
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