Non-residents disposing of UK commercial land and property are now subject to tax on their gains, thanks to legislation introduced earlier this year.
Non-Resident Capital Gains Tax (NRCGT) has already been applied to the disposal of UK residential property by non-UK resident individuals, trusts and companies since April 2015, with the calculation reflecting either a pro-rated proportion of the gain or a deemed acquisition cost based on the April 2015 market value of the asset.
Furthermore, ownership of residential property by non-UK structures is also affected by high Stamp Duty Land Tax (SDLT) rates on purchase, an annual tax charge on properties held within companies, and from April 2017 Inheritance Tax (IHT) on UK residential property held indirectly through non-UK companies.
Since April 2019, gains arising on disposals of UK situs land and commercial property have also been chargeable to NRCGT. The new legislation is not retroactive, and only gains attributable to increases in value since then are subject to tax.
IHT benefits may still be enjoyed in certain cases by holding non-residential UK property through overseas companies, but the 2019 changes enable gains arising on an indirect sale of UK land and property to be taxed where the vendor has a ‘substantial interest’ in a ‘property rich entity’.
Property rich entities are broadly companies that derive more than 75% of their gross asset value from UK property, whether residential or commercial. A substantial interest in a company is one of 25% or more, held within the two year period preceding disposal, and including ownership through intermediate entities such as partnerships which are treated as transparent for NRCGT purposes.
The 25% test takes account of voting power, equity on disposal, income on a distribution, or assets on winding up. Only one of these tests needs to be met and it will be necessary to take into account the provisions of any applicable shareholders’ agreement.
- Disposals of UK residential property by non-UK tax residents are within the NRCGT regime from April 2015.
- Disposals of all other UK land and property by non-UK tax residents are within the NRCGT regime from April 2019.
- Gains on both UK land and property held directly and that held indirectly through a ‘property rich’ entity are now subject to tax.
- Relief may be available for sales of shares in trading companies, or under the terms of an applicable double taxation agreement.
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Date: October 2019