In a major extension of the scope of UK capital gains tax (CGT), from April 2019 non-residents are now taxable on gains from direct and indirect investment in UK land and property.
Until 2013, subject to longstanding and limited exceptions, non-residents did not have to pay CGT on the sale of UK land.
The scope of UK CGT has been gradually extended since 2013, with the introduction of a CGT charge on sales of high value residential properties held by companies and other corporate vehicles, both UK resident and non-resident; and again in 2015, when the CGT charge on residential property (of any value) was extended to all non-residents, bringing individuals and trusts into the net.
From April 2019 the CGT charge has been extended even further, to include all sales by non-residents of UK land and property, both commercial and residential; and to catch sales of shares in “property rich” companies by non-residents who have a “substantial interest” in the underlying land. A company is “property rich” if at least 75% of the value of its assets are, or are derived from, UK land. A non-resident has a “substantial interest” in the underlying land if he/it has a 25% investment in the company, or has held a 25% investment at any time in the 2 years prior to the disposal.
Some of the main features of the extended CGT charge are:
- non-resident individuals and trustees making disposals which are caught by the new rules must make a return to HMRC within 30 days of the disposal, with very limited exceptions, even where no gain arises; if tax is due it must be paid within the same 30 day period
- the rates of CGT payable by non-resident individuals and trustees are as follows:
|Direct disposal of residential land||Direct disposal of non-residential land||Indirect disposal|
* depending on marginal rate of tax
- non-resident companies will pay corporation tax at 19% on direct and indirect disposals, whether the land is residential or commercial
- non-resident companies which are not already subject to UK corporation tax will have to register and file corporation tax returns
- corporation tax on direct and indirect disposals will be payable in accordance with normal corporation tax self-assessment rules
- for property affected by this charge for the first time April 2019 market value will be the base cost (rather than the acquisition value)
- there is an exemption for shares in property rich companies where the property is being used in a trade.
- there are special rules for property funds
The 30 day time limit for making a return and paying any CGT due on the sale of UK residential property will be extended to UK resident individuals and trustees from 6 April 2020. Currently the tax is payable by 31st January following the end of the tax year of disposal, so this is a significant reduction in the time to pay.
Non-residents with direct and indirect interests in UK land and property should be taking the following action now
- reviewing their UK property holding structures to determine if they still achieve the desired tax effect
- obtaining April 2019 market valuations for rebasing
- ensuring they understand their UK tax compliance obligation
Non-resident trusts and companies have been widely used by individuals domiciled outside the UK to shelter UK property from inheritance tax. The efficacy of those structures should also be reviewed in light of these changes.
On December 2, 2019