Non-resident company owners of UK property

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The past few years have brought multiple changes to UK tax law applicable to owners of UK property. Many of the changes have been targeted at overseas holders of UK residential property many of whom occupy them occasionally only or not at all.

Capital Gains Tax (CGT)

We have already seen the introduction of CGT on disposal by non-residents of UK residential property. The most recent raft of draft legislation more widely applies CGT and was published in July. It seeks to do the following:

Extend the scope of tax for non UK residents to include commercial property.
Charge CGT on residential property disposals by diversely held companies, widely held funds and life assurance companies, all of which were not previously caught.
Tax non UK residents on gains they realise from disposals of interests in UK property rich entities (such as shares in companies which derive 75% or more of their value from UK land). HMRC promises to counteract attempts to manipulate the threshold. There will, however, be an exemption for businesses who use the property in their trade and also for qualifying investors whose interest (together with certain connected parties) is less than 25% throughout the two year period leading up to the sale.
The overall policy objective is to level the playing field between UK and non UK resident vendors of UK property. The above legislation will apply to disposals made on or after 6 April 2019 and anti – forestalling and targeted anti avoidance rules will seek to catch arrangements which attempt to circumvent the new provisions. The implications of Double Taxation Treaties in conjunction with the new rules may need to be considered where indirect disposals are being made, depending on the circumstances.

There are some sweeteners: Vendors who come into the charge to tax under the new rules will have the ability to rebase their asset base costs at 5 April 2019 which will ease the transition. Additionally, non UK companies who become UK resident after 5 April 2019 will be permitted to retain the rebasing for subsequent sales.

The new rules will however, be disapplied to vendors who cease UK residence after 5 April 2019 in some circumstances. Relief for losses may also be limited with the rules following those for UK resident companies and non-resident CGT as appropriate.

Special rules will apply to collective investment vehicles and exempt entities which invest in UK property.

Corporation tax

There is some good news: There is draft legislation to charge all non UK resident companies, including close companies to corporation tax rather than CGT on gains they realise on the disposal of UK property from April 2020.

Whilst this will bring yet further change as far as compliance and reporting is concerned, the rate of corporation tax in the UK is set to be 17% from 6 April 2020 and so this should lower the overall tax burden on non UK resident profits at one level.

At the time of writing the Prime Minister is also looking at introducing a further SDLT charge of 3% on foreign purchases so whether you have or are considering owning UK real property, you should seek early advice so as not to fall foul of the UK’s tax rules here.

If you would like to discuss any of the aspects raised in this article, please get in touch.

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