Capital gains tax to be levied by UK on non-residents.

6 May 2014

The South African economy is likely to lose revenue because of the step, as the UK would in future be getting the tax instead of South Africa. South Africa’s domestic laws, besides its double tax treaties, provide for double tax relief, crediting South African taxpayers for tax paid in a foreign jurisdiction.

The rate of capital gains tax on the gains made by non-residents, such as South Africans, in the UK will be 28%, compared with the 13.3% they are charged in South Africa.
South Africans now pay 13.3% on the gains of property sold in the UK to the South African fiscus. From next year, they will pay 28% in the UK and 13.3% in South Africa, but due to the double tax relief they will only pay capital gains tax in the UK because of the higher rate in the UK. Although South Africans will be paying more tax than before, it is doubtful that it will impact on their decision to buy property in the UK . The announcement reverses an almost 50-year-old policy that allowed individuals, whether British expatriates or overseas buyers, to invest directly in UK property without paying tax on any gains once the property is sold.
The UK government aims to increase revenue and to prevent a London property bubble. A number of commentators are suggesting that the new rules would lead to a reduced appetite for high-end residential property, but some also think that this is doubtful, as London residential property is regarded as a safe-haven asset and the new tax is unlikely to change this.
The decision to introduce capital gains tax on non-residents in the UK is not unusual however it is unusual for them not to have had capital gains tax imposed on foreigners. In most foreign jurisdictions Britons pay capital gains tax if they own and sell property. In South Africa they are charged capital gains tax at a rate of 13.3%. The UK are simply conforming to global best practice where gains on immovable property are taxed in the place where it is.
There is anecdotal evidence of many South Africans with property in the UK, although the value or number of their assets are unknown. The UK does not keep record of the nationalities of property buyers. The South African Reserve Bank allows South Africans to invest up to R4m abroad. In addition, up to R1m, within the single discretionary allowance facility, can be transferred abroad.
South Africans with property in the UK should have their assets valued before April 6 2015 to provide for a base cost from where gains could be calculated.
The aim of the tax is to keep property prices down in central London where rich foreigners have been buying up bargains because of the "no (capital gains) tax system". This has in some cases pushed locals out of the property market. It will, of course, bring extra revenue, but the stated intention is for it to level the playing field for foreigners and locals.
The proposed change is likely to apply to all non-residents, including individuals and trustees. In addition, it would apply to all residential properties, irrespective of their value.
- Courtesy of Amanda Visser (BDlive)