Finance Act 2019 has brought all UK-situated real property owned by non-UK residents into UK tax from April 2019, as well as some interests in ‘property rich’ companies.
Gains on disposals of UK residential property by non-UK residents have been subject to capital gains tax (CGT) since 6 April 2015. A single regime covering both residential and commercial property applies from 6 April 2019. There is no longer an exemption for widely-held non-resident companies. The annual tax on enveloped dwellings (ATED) related CGT regime is also abolished from 6 April 2019, although ATED itself remains payable where UK residential property is held in a corporate structure.
Non-resident companies will be subject to corporation tax on gains on disposals of UK property. Individuals and trustees will be liable to CGT.
Non-residential real property includes:
- woodland, farmlands and farm buildings; and
commercial buildings such as factories, offices and garages.
- A gain on sale of any such property by a non-resident could therefore trigger a tax charge from 6 April 2019.
The new regime extends to indirect disposals by non-residents, through sales of shares in any ‘property rich’ company. A company is property rich if 75% or more of its gross asset value derives from UK property.
A non-resident investor who holds, or who has held in the last two years, a 25% or greater interest in a property rich company will be taxed on gains arising on disposal of the shares. The rules are complex. Rights in the company held by some ‘connected persons’ at the date of disposal or within the prior two years will be taken into account when calculating the 25% test.
An exemption applies on the sale of shares where all, or almost all, of the UK property is used or was acquired for the use in the course of a qualifying trade.
There are special rules for ‘property rich’ collective investment vehicles.
Double tax relief
Relief from tax on sales of shares in property rich companies may be available under some Double Taxation Agreements (DTAs). Most DTAs however allow the UK to charge tax on gains where UK property is held directly, although a credit should be available against any foreign tax payable on the same gain. Both local and UK advice should always be sought when considering a sale of UK property.
An anti-forestalling rule denies DTA benefits to non-residents who enter into any arrangements or restructuring on or after 22 November 2017 that seek to benefit from such a DTA.
The new rules for non-residential UK property only apply to increases in value from 5 April 2019, of the property itself for direct disposals and of the shares for indirect disposals. The existing 5 April 2015 rebasing continues to apply to sales of UK residential property.
The taxpayer can elect to calculate the gain using the original cost. If an election is made and a loss arises on an indirect disposal, this is not an allowable loss.
Disposals of direct or indirect interests in UK land by non-resident individuals and trustees will need to be reported to HMRC as follows:
- from 6 April 2019 - a return must be filed within 30 days of completion, and where there is no live self-assessment record a payment of tax on account needs to be made at the same time. This applies even if there is no gain, although some transfers such as those to a spouse are not caught. There is a small relaxation for one year for those who have a live self-assessment record. They will still be required to file a return within 30 days but the payment of CGT for any 2019/20 sales will not be due until 31 January 2021;
- from 6 April 2020 – the relaxation will cease to apply, with all tax payments due within 30 days of completion.
Disposals by non-resident companies will fall within the corporation tax reporting regime from 6 April 2019, with tax payable at 19% (reducing to 17% in April 2020). Companies must register for corporation tax within three months of the disposal. The earliest the tax will be due is 3 months and 14 days from the date of disposal.
The application of UK taxes to UK property has been significantly widened over the last few years. As such, all non-resident persons holding UK real-estate either directly or through structures should discuss their future plans for their UK property with us so that we can advise on the potential impact of these new rules.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.