Non-resident CGT charge to encompass commercial property

George Hay Chartered Accountants

Following the unveiling at Autumn Budget 2017 and a consultation early last year, the government has now issued draft guidance in respect of its plans to extend Capital Gains Tax (CGT), to non-residents, for gains arising on all disposals of immoveable UK property or land, from 6 April 2019.

The new rules are designed to bring the UK’s CGT regime more in line with those of other countries and to level the playing field between UK and non-UK investors.

From April 2019, the rules will apply to:

  • both commercial and residential property;
  • all non-residents (removing prior exemptions for certain non-close companies); and
  • indirect disposals (e.g., sale of shares in a company that owns UK property).

The Government will “harmonise” the new rules with the existing regimes for non-resident CGT and ATED-related CGT on disposals by non-residents of residential properties.

Disposals will be subject to CGT or corporation tax as appropriate and the chargeable rates of tax will be the same as they would be for equivalent disposals by UK residents.

Where commercial property is held by non-resident individuals, CGT will apply to gains made on the disposal of that property at a rate of 10 per cent or 20 per cent, depending on whether the individual is a basic or higher-rate UK tax-payer.

It will remain necessary to distinguish between commercial and residential property for the purposes of applying the higher CGT rates to upper rate gains (18 per cent and 28 per cent respectively).

Overseas companies will be charged at the current corporation tax rate of 19 per cent, falling to 17 per cent in April 2020.

It is important to note, however, that the cost of the commercial property can be rebased to its market value as at 6 April 2019; for both non-resident individuals and companies. This means that only gains accrued after that date will be chargeable under the CGT or corporation tax regimes.

Barry Jefferd, Tax Partner at George Hay, said: “Although the new measures will achieve the government’s goal of bringing the UK in line with many other jurisdictions’ property tax regimes, it will simultaneously remove one of the most appealing aspects of UK property for non-UK investors. However, the changes have been well trailed and simply bring the rules  for commercial property into line with residential property”

“This may have a significant impact on the market and has the potential to put off those overseas wanting to invest in UK commercial property.”

“Any non-resident individual or company, currently holding UK property, should discuss the likely implications of these new measures with a professional adviser, before making any decisions about what to do going forward.”

A couple of other changes that are also worth bearing in mind are that, from 1 March 2019, the payment of Stamp Duty Land Tax and filing date for the return will be 14 days after the transaction, rather than the current 30 days.

In addition, capital gains tax due on the sale of UK residential property will be payable to HMRC within 30 days of completion, from April 2020, rather than the current deadline of 31 January following the end of the tax year in which the sale is made.

Capital Gains Tax can affect both individuals and business and should always be carefully considered as it can often involve particularly large sums of money. It is never too soon to consider Capital Gains Tax planning and a proactive approach could make a significant difference to your resulting liability.

If you’d like to talk to one of our experts about effective tax planning, please contact us today.

You can also read more in our article ‘What happens if… I have a Capital Gain?’ here.