In most cases, non-UK resident individuals, trusts and companies are not subject to UK Capital Gains Tax (CGT) or Corporation Tax on disposals of their assets.
There are exceptions to this. In particular, since April 2015, non-UK residents are subject to CGT where they dispose of UK residential property. Only the post-5 April 2015 increase in value is subject to tax. This CGT charge is applied to both individuals and companies disposing of UK residential property, despite companies usually being subject to Corporation Tax rather than CGT.
Since 6 April 2019 these rules have widened to include disposals of commercial property where companies will be subject to Corporation Tax rather than CGT. There is also a new charge on disposals of “property-rich vehicles” by non-residents where the relevant person has a “substantial indirect interest” in that land.
What are “property-rich assets”?
“Property-rich assets” are those which derive at least 75% of their total market value from UK land. This will be the case if:
The asset consists of a right or interest in a company; and
At the time of the disposal, at least 75% of the total market value of the company’s qualifying assets derives (directly or indirectly) from interests in UK land.
It’s not clear exactly what due diligence will be required when applying this rule, but HMRC’s Consultation Response Paper from July 2016, states that guidance on this will be produced. It states that “in many cases, it will be sufficient to look at a balance sheet or similar statement that represent recent valuations of the assets.”
What is a “substantial indirect interest”?
The disposal of a property-rich asset is only chargeable if the taxpayer has a “substantial indirect interest” in the asset. This will usually be the case if at any time in the period of two years ending with the time of disposal, the person had a 25% investment in the company.
Calculating the charge
The acquisition value for the purposes of calculating the gain will usually be the value at April 2019 for a direct disposal of commercial real estate or a “property–rich asset”. Individuals and trusts will be taxed at rates of 10%/20% and companies will be taxed at the Corporation Tax rate (currently 19%).
There’s an exemption to the property-rich test where the company is trading. The taxpayer won’t be caught by the “property-rich” rules where all of the interests in UK land are used for trading purposes, or would be if “low-value non-trade interests in UK land were left out of account.” “Low value” is no more than 10% of the total market value of the interests in UK land used for trading purposes. Trading companies may need to review their structures and determine whether a reorganisation is beneficial.
The widening of CGT and Corporation Tax to cover “property-rich vehicles” joins a whole raft of recent legislation which has made holding land via corporate vehicles less attractive, in particular:
An increase in Stamp Duty Land Tax to 15% on purchases of “high value” residential property by companies
An annual tax charge on residential property owned by companies rather than by individuals (the “ATED”)
An increased rate of CGT on sales by companies which fall within the ATED regime (abolished with effect from 6 April this year).
The government has also recently consulted on the introduction of 1% SDLT surcharge on non-UK residents purchasing residential property. The consultation closed on 6 May and the change is to be implemented in a future Finance Bill.
Published: May 2019
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