Posted on 12 Dec 2018
Finance Bill 2019 – implications for non-UK residents on disposals of UK land and property
Currently, there is an inconsistent approach as to how Capital Gains Tax ('CGT') is charged on disposals of UK property. For example, non-UK residents disposing of UK commercial property will not be subject to UK CGT on gains, but a disposal of UK residential property by them will be subject to the Non-Resident Capital Gains Tax ('NRCGT') regime. In contrast, UK residents are always subject to tax (CGT/corporation tax) on any disposals of UK property whether residential or commercial.
The Government's intention is to level the playing field between offshore and domestic investors and align the UK with many other jurisdictions that tax disposals of their land, regardless of the residence status of the owner.
The Finance Bill 2019 is set to implement changes effective from April 2019. This introduces new rules that will mean disposals of both residential and non-residential property by non-UK residents (which include non-UK resident companies, individuals, trustees and personal representatives) will, subject to certain exemptions, attract either a CGT or corporation tax on chargeable gains. Some of the key points are as follows:
- Non-residents will be subject to tax on all direct disposals of UK land
- Non-residents will be subject to tax on indirect disposals of certain interests in "property rich" assets ('property rich' meaning that at least 75% of the value of the asset, at the time of the disposal, is derived from UK land). The rules surrounding which indirect disposals are taxable are complex
- The existing ATED-related CGT provisions will be abolished
- Non-resident companies realising gains will be taxed under corporation tax and for all other non-residents the charge to tax will be under CGT
- Direct and indirect disposals are to be reported to HMRC within 30 days of the disposal.There may be the option of rebasing gains to 5 April 2019.
The changes will impact many non-UK residents and the proposed implementation date of April 2019 is seen as very ambitious. Consultation with HMRC is ongoing and CIOT has put forward their recommendation that the implementation date is delayed until April 2020. This is to allow for familiarisation with the new provisions, more time to implement the significant operational changes which arise for both taxpayers and HMRC as well as an effective period of further consultation with industry on the treatment of collective investment vehicles and exempt investors. The CIOT also notes that current projected tax revenues are low in the early years of the change and therefore, the revenue foregone by delaying implementation is relatively less significant.
In conclusion, it would seem that delaying the implementation of the changes would be welcome and would provide more time for professionals, taxpayers and HMRC to get to grips with the upcoming changes. As with the original NRCGT regime targeting non-resident owners of UK residential property, it proved difficult for HMRC to implement this change and make the relevant individuals aware of their reporting obligations, given their non-resident status. There are also still unresolved issues and discrepancies in the NRCGT legislation compared to HMRC guidance.