Capital Gains Tax for non-residents – widening the net

By Andy Noton, Partner
020 7490 7766

In the Autumn Budget 2017, the Government announced its intention to introduce Capital Gains Tax for non-residents on immovable property, i.e. UK land and buildings. This can be seen as widening the scope of the non-residents’ capital gains tax for residential property (NRCGT) introduced with effect from April 2015.

The scope will be widened for gains accruing from April 2019 in two ways:

  1. All non-resident persons (including non-resident companies) will be subject to tax on disposals of all interests in UK Land (previously NRCGT only applied to residential property and only for companies that are closely-held).
  2. Indirect disposals of UK land will be chargeable, these broadly will be where 25% or more of the shares in a company holding UK land (an “envelope”) are sold and that envelope derives 75% or more of its gross asset value from the market value of UK land.

The charging of indirect disposals of UK land can be seen as a surprise and change of tack by the Government. Currently the disposal of “envelopes” holding UK property can be attractive as it can result in Stamp Duty Land Tax savings and avoid triggering tax on disposals of the underlying assets (certainly where UK envelopes are involved).  This change does fit with the current intention of the Government to create a register of beneficial owners in UK land managed by Companies House.

Currently many non-resident investments in UK land are made with the assumption of no tax on exit through the use of offshore property and holding companies as the Panama and Paradise Papers have shown. What maybe of surprise to some in the industry are the relatively small amounts this change is expected to raise, with £35 million in 2019-20 rising to £165 million in 2022-23 as the change could remove one of the major advantages of disposing of shares in companies holding UK Land rather than the land itself.

Simultaneously the Chancellor announced the taxing of non-resident companies under the corporation tax regime from April 2020, rather than income tax, and freezing of the indexation allowance from January 2018 which will both impact non-resident companies investing in UK land. 

For more information on the changing property scene, please feel free to contact Andy Noton.

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