Re-basing opportunity for non resident CGT
The change is currently proposed to apply to gains accrued on or after April 2019. The intention is to align the UK with other countries and remove an advantage which non-residents have over UK residents by bringing all gains on non-resident disposals of UK property within the scope of UK tax.
Capital gains tax (CGT) and corporation tax were historically only charged on disposals by UK residents but expanded in 2015 to also include disposals of UK residential property by non-UK residents. A consultation, announced during the 2017 Budget and ending earlier this year, proposed extending the regime to disposals of any UK property by non-residents. The purported aim of such proposals was to both simplify the existing rules, whilst also making a more level playing field- between investments in UK land by UK residents and non-UK residents.
The responses to the consultation and draft legislation were published on 6 July 2018 and it is anticipated that any changes will take effect from April 2019.
Proposed new CGT charges
There are two new charges:
Disposal of UK commercial property by non-UK residents
CGT for non-UK residents currently only applies to disposals of UK residential property held by non-widely held companies. CGT will be extended to apply to disposals of any UK property, i.e. including of non-residential property and of residential property by widely held non-UK resident companies.
Disposal of shares in property rich- companies
CGT will also be imposed on the sale of shares of companies whose assets consist of, to a substantial extent, UK real estate (either residential or non-residential). Despite the introduction of non-resident CGT to disposals of UK residential property in 2015, the disposal of shares in property holding companies remained a safe haven-. This will no longer be the case from April 2019, when the new rules will apply if:
1 the company is property rich- (i.e. if 75% or more of its value derives from UK property). The disposal could be of the company which directly owns the UK property, or a parent or holding company of a subsidiary holding UK property. Where more than one company is sold, complicated rules apply to work out whether, in aggregate, 75% of the value of the companies derives from UK property; and
2 the non-resident (and related partners) hold, or at some point in the previous two years have held, at least a 25% interest in the equity.
|Type of sale by non-resident||Current position||Position post April 2019|
|Sales of UK residential property||Gains arising after April 2015 subject to CGT for closely held companies.||Charge extended to widely held companies.|
|Sales of UK non-residential property||Not currently taxed||. Gains arising after April 2019 will be subject to CGT.|
|Sales of shares in property holding companies||Not currently taxed.||Gains arising after April 2019 will be subject to CGT if company is property rich- and interest exceeds 25%|