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UK Autumn Budget 2018: UK Property Owned by Non-Residents

Private Clients - 29 Oct 2018


Non-UK Resident Companies and UK Property Income  

Following an earlier consultation, from 6 April 2020, non-UK resident companies that carry on a UK property business, or have other UK property income, will be charged to Corporation Tax, rather than being charged to Income Tax as at present.

This policy is part of the ongoing programme to ensure equal tax treatment for UK and non-UK resident companies (and individuals) and to prevent those that use this difference to reduce their tax bill on UK property through offshore ownership.

As part of these changes, a non-UK resident company will not need to notify its chargeability to Corporation Tax in cases where its only UK income source is its UK property business provided that UK tax deducted at source from its rental income fully satisfies its liability to Corporation Tax on the profits of that business.  In addition, a transitional measure will allow a non-UK resident company to carry forward any existing Income Tax losses to be offset only against future UK property business profits chargeable to Corporation Tax.

The issue of filing of tax returns by non-UK resident companies that invest in UK property only through large transparent collective investment funds and the reporting obligations of those funds remain under review.

Non-UK residents disposing of UK land, or of interests in entities holding UK land.

In a similar vein, with effect for disposals made on or after 6 April 2019, the scope of the taxation of gains accruing to non-UK residents, for both individuals and  corporates, will now be extended to include gains on disposals of interests in non-residential ie commercial UK property. It also extends the charge on gains on disposals of interests in residential property to diversely held companies, those widely held funds not previously included, and to life assurance companies. The measure also taxes non-UK residents’ gains on interests in UK property rich entities (for example, selling shares in a company that derives 75% or more of its value from UK land).

All non-UK resident persons will also be taxable on indirect disposals of UK property. The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities who hold a less than 25% interest. The gains on indirect disposals will be calculated using the value of the asset being disposed of, rather than the value of the underlying UK land.

There will be a trading exemption so that disposals of interests in property rich entities that are trading before and after the disposal will not be chargeable disposals where the land is used in the trade. This is likely to apply where, for example, a non-UK resident disposes of shares in a retailer which has significant value in the form of shops.

Non-UK resident companies, including close companies, will be charged to Corporation Tax rather than Capital Gains Tax on their gains.

Existing reliefs and exemptions available for capital gains will be available to non-UK resident, with modifications where necessary. Those who are exempt from capital gains for reasons other than being non-UK resident will continue to be exempt.

Losses arising to non-UK resident companies under the new rules will be available in the same way as capital losses for UK resident companies. Capital Gains Tax losses will follow the existing rules for non-resident Capital Gains Tax losses.

Similar to the rules affecting residential property, there will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. Both options will be available for both direct and indirect disposals. Where the original cost basis is used to calculate an indirect disposal and this results in a loss it will not be an allowable loss.

Specific rules relating to how these rules will affect Collective Investment Funds will be detailed in a Technical Note to be published on 7 November 2018.

The provisions relating to ATED-related Capital Gains Tax will be abolished.

Read the full report
In a Budget to signal the coming of the end of austerity Philip Hammond announced measures to increase public spending in particular to provide a boost to the NHS, Highway’s Agency and Counter Terrorism policing. 

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