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From April 2019 significant changes non resident CGT have impacted how commercial property gains are taxed in the UK. If you are a non-resident holding UK commercial property. It is crucial to understand these changes to avoid unexpected tax liabilities.
In this guide we explore the old and new rules for Non Resident CGT, how these changes affect non residents holding commercial property and what investors need to do to prepare.
Non Resident CGT on UK Property
What is Capital Gains Tax (CGT) for Non Residents?
When you sell an property/assest that has rise in worth you are subject to a tax known as capital gains tax. For many years this tax only applied to UK residents. However, since 2015 CGT rules have gradually expanded to include non-resident property investors, initially covering residential properties and from April 2019, commercial properties.
Non Resident CGT: The ‘Old’ Rules for Commercial Property
Until recently, capital gains tax was only ever applicable to UK residents. As such – wherever an asset was based – a non-UK resident would not have to pay tax on gains related to the disposal of such. Of course, this rule was tempered by certain anti-avoidance measures (prohibiting the use of non-UK companies and trusts for CGT purposes, for instance).
New Non Resident CGT Rules for Commercial Property (April 2019 Onwards)
In recent years, CGT has been extended to specific non-residents holding residential property within the UK. The latest proposed change – which comes into effect from April 2019 – will affect the vast majority of non-resident owners of UK land and property: all forms of property investment by non-residents will be subject to CGT, and many of the previously-applicable exclusions will be removed.
The exemption from UK capital gains tax represented a key benefit for foreign investors; as such, all relevant non-residents holding commercial property should be mindful of the upcoming changes and plan accordingly. The new rules include the following stipulations.
1- Non-Resident CGT Rates: What You Need to Know
From 6th April 2019 gains by individuals will be subject to UK capital gains tax (presently 20 per cent for additional/higher rate taxpayers). From 1st April 2019 gains by non-resident companies and unit trusts will be subject to corporation tax (presently 19 per cent).
2- How Historic Gains are Protected Under the New Rules
Historic gains will be protected. That said, increases in value arising after this date will be subject to tax – meaning that investors who held assets before the changes were brought in will likely pay some tax on disposal (which will be proportional to any increases in value).
3- Indirect Disposals: Shares in Property-Rich Vehicle
Also within the scope of the new tax rules will be indirect disposals – such as exits due to the sale of shares in property-rich vehicles (defined as an entity that derives 75 per cent of its gross asset value – or more – from UK land/property). Should the person making the disposal own (or has owned within the last five years) an interest equal or greater to 25 per cent in the vehicle, gains will be subject to tax.
4- How REITs and Unit Trusts are Treated Under New CGT Rules
This also applies to non-resident individuals investing via collective investment entities (like REITs or unit trusts), provided that the above conditions are met. For non-resident entities that are part of a UK REIT group, things are a little more complicated: technically, this falls within the scope of the new taxation legislation, but will be treated as REIT exempt gains, meaning that any profits arising from such will need to be distributed as a property income dividend rather than a normal dividend. As a result, 20% PID withholding tax will be due.
How Double Taxation Treaties Impact Non-Resident CGT
Double taxation treaties can play a crucial role in determining whether non-residents will be liable to pay CGT in the UK. Depending on your home country, such treaties may offer relief from paying CGT in both countries, ensuring you aren’t taxed twice on the same gain.
How Non-Resident CGT Affects Foreign Investment in UK Commercial Property
Following the earlier changes to legislation, the extension of CGT to non-residents holding commercial property (thus covering all non-resident property investment) seems a logical step, and will bring the UK in line with many other countries. However, the revisions may remove some of the most appealing qualities of UK property for foreign investors, a group that already owns a large share of commercial property in the UK. It remains to be seen how this may affect the real estate market.
Need Help Navigating Non-Resident CGT? Contact IBISS & CO
If you’re feeling confused about current tax regulations or upcoming changes, or if you are seeking advice regarding your UK property holdings, feel free to Contact IBISS & CO today. Specialists in tax advice and accountancy, our friendly, expert team will talk you through the latest legislative amendments, ensuring that you approach your affairs with confidence. With our help, you will soon have a tax strategy in place that will best serve both your individual interests and that of your business.
Conclusion
Understanding the changes in Non-Resident CGT is critical for foreign investors holding commercial property in the UK. With the right advice and strategic tax planning, you can ensure your investment remains profitable while minimising tax exposure. Contact IBISS & CO today to get expert guidance on your UK tax obligations.
