Tax charges for non-resident owners of UK property set to come into force

28 / 03 / 2019

On the 6 April 2019 significant changes to the taxation of non-UK resident individuals and companies owning UK real estate will come into effect.

At present non-resident owners are only subject to UK taxation on gains arising on the disposal of UK residential property and those owning non-residential (i.e. commercial) property and land are generally outside the UK’s capital gains tax (“CGT”) and corporation tax regimes.

New rules will come into force from 6 April 2019 which will extend the CGT rules to direct disposals by non-resident owners of non-residential property and also to indirect disposals of UK property more generally.

Direct disposals

  • Disposals (direct and indirect) of UK commercial property by non-resident individuals and companies will be subject to CGT or corporation tax, as applicable.
  • For non-resident individuals, CGT will be chargeable on any gain arising on the disposal of that property after 6 April 2019 at a rate of 10% or 20% depending on whether the individual is a basic or higher rate UK tax-payer.
  • For non-resident companies, UK corporation tax will apply to any gain made on a disposal of the property, at a rate of 19% (set to reduce to 17% in April 2020).
  • The value of non-residential property will be ‘rebased’ either at 1 April 2019 (for companies) or 6 April 2019 (for other persons) meaning only the appreciation in value since the relevant date will be chargeable.

Indirect disposals

  • Non-residents disposing of a shareholding or interest in a company or entity where at least 75% of the gross asset market value of the company derives directly or indirectly from UK property (a “property rich entity”) will also be within the scope of CGT.
  • A CGT charge will apply on a disposal of a shareholding if this represents at least a 25% stake in the company.
  • An exemption is available if the company is holding property used for a trade (i.e. an activity carried out on a commercial basis with a view to profit) and the trade will continue.
  • The remittance basis may be available for UK resident non-UK domiciled individuals disposing of shares.
  • Rebasing will be available when computing gains arising on indirect disposals.

Practical steps to take now

  • Obtain valuations of commercial property as contemporaneous as possible with 6 April 2019 (the rebasing date).
  • Carry out property improvement works and refurbishments before the relevant rebasing date to maximise the value of property before the relevant rebasing date.
  • Consider ‘onshoring’ non-UK companies to reduce the costs of maintaining non-UK structures which no longer provide tax benefits. Non-UK companies that become UK resident on or after 6 April 2019 will retain the right to rebase their underlying property assets at their 6 April 2019 market values.