Introduction of the new CGT charges for non-UK residents

Introduction of the new CGT charges for non-UK residents 

Further to recent consultations held and announced during the Autumn 2017 Budget speech, the UK Government will be introducing a new taxation of Capital gains tax (CGT) taxes on non-UK residents on disposals of any UK property (i.e. including commercial property) and not just UK residential property as previously extended to in 2015, from April 2019.  In addition, the limited exemptions currently available on gains made by non-UK residents on the disposal of UK residential property will also be amended, with many removed.

The aim of the new rules is to align the UK with other countries and to have a single, unified regime to both UK residents and non-UK resident investors.

The new rules will also apply (i.e. CGT will also be imposed) to the disposal of indirect interests in UK property, including the sale of shares in ‘property rich’ companies/ persons who have a 25% interest in the company.

A company is defined as ‘property rich’ if 75% or more of its value is derived from UK property). The sale/ disposal could be of the company which directly owns the UK property, or a parent or holding company of a subsidiary holding UK property.

Historic gains will be protected and will not be subject to the new tax, and there will be a valuation “rebasing” of interests in UK commercial properties held by non-residents from April 2019.

Non-resident companies and unit trusts will be taxed at the corporation tax rate (currently 19 per cent) while individuals and other entities will be taxed at capital gains tax rates (currently 20 per cent for higher and additional rate taxpayers).

The Government was not able to finalise the draft legislation for offshore collective investment vehicles and exempt investors, and instead set out a framework to deal with these issues. For example, offshore funds which are not closely-held and who agree to certain reporting requirements will be eligible for special tax treatment.

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. The policy will be finalized in the Finance Bill 2018-2019

These changes, removing one of the most attractive features of UK real estate for non-UK investors, are likely to have a large impact with foreign investors generally dominating the property market in London, and with the U.K. having the largest commercial property market in Europe.