Tax changes in store for UK property owners

Tuesday 21 August 2018

On 6 July the UK Government confirmed its intention to make two key changes to the taxation of UK property. Glenn Cassidy, Senior Tax Consultant at Equiom, outlines these changes and their potential impact on global residents.

2017 was a pivotal year for property tax with a series of big announcements leading to inevitable change in the industry. Residents around the world with an interest in UK property have been waiting with bated breath since the UK Government issued two consultation documents concerning the taxation of non-UK residents and UK property.

The first of these documents was published in March 2017 and considered the case for bringing the profits of non-resident companies with a UK property business within the charge to UK Corporation Tax (CT). In this document, the UK Government also proposed to bring non-UK resident companies with gains realised on the disposal of UK residential property within the scope of UK CT, rather than continuing with the current Non-Resident Capital Gains Tax (NRCGT) regime.

On UK Budget Day (22 November 2017), the UK Government then published a second consultation document entitled, ‘Taxing gains made by non-residents on UK immovable property.’ This document introduced new terminology (i.e. ‘immovable property’) and the concept of ‘indirect disposals’. In essence, this document made it apparent that the UK Government intended to subject non-UK residents to a UK tax charge on any gains realised on the disposals of all UK property (no longer solely UK residential property). Non-UK residents would also be subject to a UK tax charge on gains realised on the disposal of any ‘substantial interests’ held in a ‘property rich’ entity (i.e. ‘indirect disposals’).

What happened on 6 July 2018?

The UK Government released the draft Finance Bill 2018/19 which has confirmed its intentions, including:

  1. Gains realised on the disposal of all UK property (both direct and indirect disposals) by non-UK residents will be subject to a UK tax charge from 6 April 2019, and
  2. Non-resident corporate landlords will move from Income Tax (IT) to CT from 6 April 2020.

What does this mean for residents worldwide with an interest in UK property?

In the case of ‘1’ above, the draft legislation has confirmed it should only be the gain accruing from April 2019 which should be subject to a tax charge (i.e. rebasing should be available to April 2019), with non-resident companies being subject to a UK CT charge on such gains rather than NRCGT. The draft legislation also confirms that a ‘property rich’ entity is an entity which derives at least 75% of its gross asset value from UK land, and that a ‘substantial interest’ will be a 25% (or more) holding in that entity in the two years prior to disposal.

In the case of ‘2’ above, non-resident corporate landlords will need to familiarise themselves with the completion of UK CT returns going forward and the calculation of UK rental profits under UK CT rules.
These latest proposed changes to the taxation of non-UK residents holding UK property will need to be considered in tandem with the numerous changes which have already taken place in this area over the last few years. This will no doubt add to the steep learning curve already being experienced by professionals in this field. Whilst it may only be draft legislation, it is consistent with the consultation documents which have been released before it and would suggest that the final legislation could indeed look very similar.

Any non-UK residents with a direct or indirect holding in UK property would therefore be advised to watch this space with interest.

If you are concerned you might be affected by any of the changes detailed above, please contact Glenn Cassidy.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.