BRITAIN is perhaps unique in one important respect - apart from the weather of course - which sets it apart from the other major world residential property markets now attracting interest from Hong Kong. The nation's Inland Revenue will do everything it can to extract ''its pound of flesh'' from the net rental income of a non-resident landlord, and it has extensive powers to collect the tax from British agents, or from the tenants - by deduction at source. However, the rules are surprisingly generous when it comes to capital gains tax. Only people who are resident, or ordinarily resident, in Britain are liable to capital gains tax - even if the property is in Britain. Accordingly, realisation of the profit on sale, which would normally be expected by a Hong Kong investor, would be free of tax. For those not looking to become tax residents in Britain, this is an important part of the property investment equation. However, a large number of investors will want to become British residents, but will still prefer not to pay capital gains tax when they sell the property. For those investors, all is not lost, because British rules offer genuine opportunities for remaining wholly or mainly outside of the scope of capital gains tax. Nonetheless, it is not all one way. There is one area where the British tax authorities can take a disproportionate bite of tax from your profit. British residents are liable to capital gains tax on gains from a UK property, irrespective of the period during which they were made - even if they have been made entirely while resident abroad. For example, if you bought a British property in 1986 for GBP100,000 (about HK$1.15 million) and took up British residence last year when the property was worth GBP200,000, and you sell it next year for GBP190,000, the whole of the GBP90,000 gain will betaxable. This is despite the fact no gain has arisen during your period of residence in Britain. There is no automatic re-basing when you take up British residency - and that is the problem. The answer to this problem is to do your own re-basing. A transfer to a trust or to a company in the tax year before taking up British residence means the whole of the capital gain up to that time is lost. Only the future increase in value will be taxable, but even then there will be indexation relief to reduce the gain - that is to say, the market value at the time the property is transferred to the trust is increased each year, by the rate of inflation. The same position arises if you are going to use the property as your main residence. A main residence is exempt from capital gains tax - but that exemption only applies for the period during which it actually is your main residence (plus the last three years of ownership in any event). So, if you go to Britain to live in a property which you have owned for 10 years, you will not get the exemption for that time and that proportion of the gain will always be taxable. By transferring the property to a trust before going to Britain, the earlier period is ''washed out'' and the trustees will be entitled to the main residence exemption if you do use the property as your main residence. But a word of warning - under no circumstances should you live in a house, as your main residence, if it is owned by a company. Not only will that disqualify you from the capital gains tax exemption but it is likely to create a substantial income tax liability each year. If you own two or more properties which you use partially for residential purposes, the opportunities increase considerably. This is because you have the right to elect which one of the properties is to be treated as your main residence and, therefore, exempt from capital gains tax. This may not sound particularly helpful but it enables you to make sure the largest gain is exempt and also to create an extra three years of exemption. An election for one house to be treated as the main residence automatically entitles you to the exemption for the last three years of ownership: you can later change the election to the other property, becoming automatically entitled to the exemption forthe last three years of ownership on that property as well. For those living in Britain for whom the UK is not their natural home, none of these complications matter. The new rules in Britain for taxing non-resident trusts confer substantial privileges on such individuals. If the property is held in trust with trustees resident outside of Britain, no capital gains tax will ever arise, even if all the proceeds of the sale are distributed to the individual and remitted to the UK. This advantage does not only apply to residential property, so anyone whose natural home is Hong Kong, intending to take up residence in Britain, can avoid capital gains tax on all their assets by transferring them to an offshore trust before going to Britain. If, after taking advantage of all these techniques, a capital gain arises, there is still the annual capital gains tax exemption of GBP5,800 per person, which can be set against the gain. This exemption is available to both husband and wife, so jointly owned property is eligible for GBP11,600 of exemption. Given the large number of alternatives available to individuals intending to invest in property in Britain, it is usually unnecessary to be exposed to any British capital gains tax. Plan early and, with proper professional advice, you will avoid contributing, unnecessarily, to the Inland Revenue's coffers.Peter Vaines is a chartered accountant and barrister with Brebner Allen and Lui.