Corb Your Enthusiasm Part 2 – Labour Manifesto Pledges Affecting Property Investors
04 / 12 / 2019
In this follow up article (pre-election Part 1 here), we take a look at some of the measures in Labour’s recent manifesto affecting property investors. A comparison of the Labour, the Conservatives and the Liberal Democrats proposals will feature in a separate article for our In Trust publication.
1. 20% Offshore Company Property Levy
Under a Labour Government, non-resident companies and trusts would pay a 20% tax, in addition to SDLT (up to 15%) and the ongoing Annual Tax on Enveloped Dwellings.
Globally Speaking readers may recall the recent consultation on an increase to SDLT for non-resident buyers by 1%. That proposal has made its way into the Conservative manifesto as a 3% surcharge over the current rates for non-residents, applicable to individuals as well as companies and trusts.
2. Non-Resident Capital Gains Tax
Non-Resident Capital Gains Tax (“NRCGT”) was recently expanded from disposals of UK residential property to include disposals of certain foreign companies holding UK residential property.
An exception exists for companies with property held for the purposes of a trade (not a lettings business). Labour’s manifesto pledges to bring disposals of these trading companies within the scope of NRCGT. A new exemption for small investors with a £1m limit would be introduced.
A further exception to NRCGT is that interests of under 25% in foreign companies holding property are disregarded. Labour’s manifesto proposes to remove this de minimis.
3. Withholding Tax for “Tax Havens”
A withholding tax (a tax deducted at source in the UK) would be introduced on certain payments to individuals or companies located in “tax havens”. In creating the UK definition of a tax haven, the approaches of the OECD and EU countries would be considered. Whether those approaches would be followed remains to be seen.
The OECD’s “Uncooperative Tax Havens” list has not featured any countries since 2009. The EU’s list was extended from 5 to 15 countries in March this year and includes, for example, the UAE, Samoa, Fiji and Guam.
4. Abolishing non-dom status
The current position is broadly that non-doms are individuals of foreign origin who cannot be shown to be settled long term in the UK. The main consequences are:
- Inheritance Tax is not charged on their assets outside the UK, except principally for offshore companies owning UK residential property; and
- they can choose to defer tax on their foreign income and gains until they bring or use them in the UK, paying annual charges after the 7th year of residence.
Labour’s proposal would see this basis of taxation removed entirely. It is unclear at this stage whether domicile as a general legal concept would continue to be relevant for those making wills with a foreign element.
5. Corporation Tax rates
At present, Corporation Tax rates are 19%. Labour would implement a gradual increase to 26% from April 2023, with lower rates for companies with profits under £300,000. The current government had proposed to reduce the rate to 17% from next April, although has postponed that measure in the run-up to the General Election.
6. Public Registers of Beneficial Ownership
Labour’s manifesto would see the Trusts Register be made available for inspection by the public, without the current need for a “legitimate interest”. The equivalent register for companies, the Persons with Significant Control Register, would reveal all shareholders, beyond the current threshold of a 25% interest.
All of these proposals are significant in their own right and warrant specific advice on a case by case basis. Whether any of the proposals will be introduced will very much depend on what the nation decides when it goes to the polls on 12 December. Modern politics is far from predictable and at the time of publication of this article there is still no certainty as to what the outcome of the election might be.
We regularly advise clients with regards to the holding, transfer and taxation of UK and foreign property. Please get in touch with your usual contact, or Andrew McIntyre, who would be happy to discuss further.