October 23, 2018

October 22, 2018

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Major Changes Proposed to UK Tax Regime for Non-resident Investors in UK Commercial Property

The UK Government has announced in today’s Budget (22 November) that it is launching a consultation on extending the scope of UK tax on real estate.

Currently, non-UK residents who are investors in UK land and buildings are outside the scope of UK tax on gains on commercial property. They pay income tax on the net rental income but not on gains on disposal. Currently, only gains on UK residential property are within scope of tax for non-resident investors but subject to significant exemptions, in particular for widely-held companies.

It is proposed that, from April 2019:

  • All non-residents will be liable to tax on gains on disposal of UK property. They will pay corporation tax if companies and capital gains tax otherwise.

  • Only the gain post April 2019 will be in scope. There will be a rebasing to April 2019 values, with options to elect for a different treatment if disadvantageous – for example where there is a latent loss at that date.

  • The charge will be extended to the disposal of “property-rich companies” – i.e., those where 75% or more of its gross asset value at disposal is represented by UK immovable property. This is tested by ignoring any debt in the company. Only those who own, or have done at some point within the five years prior to the disposal, a 25% or greater interest in the entity are caught by this part of the legislation.

  • Interests in partnerships, trusts, collective investment vehicles will all be in scope, provided the property richness and ownership threshold tests are met.

  • The rules will create a single regime for disposals of interests in both residential and non-residential property, introducing a new charge for gains on disposals of commercial property and extending the current rules for residential property to indirect sales and disposals made by widely-held companies.

  • The Government acknowledges that the terms of any relevant double tax treaty will be relevant. Some treaties may not allow the UK to tax interests that are not represented by shares in companies or, in other cases, where the UK property is held two or more layers down in a group structure and the “property richness” test is not met at the top-tier level. Anti-forestalling measures are being introduced to stop “treaty shopping” to move UK property assets into more favorable jurisdictions.

  • The consultation is open until 16 February 2018.

© 2018 Proskauer Rose LLP.


About this Author

Robert Gaut, Proskauer Rose, UK Tax Lawyer, Investment Attorney, Finance

Robert Gaut is a tax partner and head of our UK tax practice in London.

He has represented many of the world’s preeminent multinational corporations, sovereign wealth funds, investment banks and private equity funds on a full range of UK and international tax strategies relating to inbound and outbound transactions, capital markets offerings, establishment of investment funds and financing matters.

Recent representative transactions include:

  • Advising Ares Management LP, the leading...

Stephen Pevsner UK Tax law partenr Proskauer Rose private fund formation eorganisations, structured finance, investment funds

Stephen Pevsner is a tax partner and a member of the Private Investment Funds and Private Equity M&A groups. Stephen's practice covers the broad range of corporate and individual tax advice, with particular emphasis on private fund formation across a wide range of buyout, debt and infrastructure asset classes, as well as UK and international M&A transactions (often private equity backed). He has wide experience in corporate reorganisations, structured finance, investment funds and new business set-ups, and also advises regularly on a wide range of employee and fund manager incentive arrangements arising from these transactions.

Stephen is a member of the BVCA tax Committee and, according to Chambers UK, he is a notable practitioner in the corporate tax field, praised for "his ability to master the intricacies of tax law and understand the commercial aspects of the deal".