On 6 April 2019, HMRC introduced rules that seek to tax non-residents on disposals of UK residential and commercial property in the same way as their UK-resident counterparts. This follows the government consultation that closed in February 2018.
Under the new rules, where a seller (regardless of their tax residence) generates a gain from the disposal of UK property:
- individuals and trustees are subject to capital gains tax (CGT, at up to 28% for residential property and up to 20% for commercial property); and
- companies are subject to corporation tax (currently at 19%, expected to reduce to 17% by 2020).
This is a fairly significant change, and for certain taxpayers it is a welcome one.
Under the old rules, non-residents were only subject to CGT on sales of UK residential property, so the charge for commercial property is an extension of their UK tax liabilities. However, under the new rules:
- companies are now subject to a lower rate of tax (19% corporation tax, compared to 28% ATED-related CGT or 20% NRCGT);
- companies selling UK residential property that was subject to ATED since its introduction in 2013 can rebase to the market value as at April 2015, and no longer have to pay any tax on the gain attributed to the period between April 2013 and 2015; and
- there are also rebasing options to the April 2019 market value for certain non-residents selling residential property and for all non-residents selling non-residential (i.e. commercial) property.
Whilst "giving" with one hand, HMRC has taken with the other. Since 6 April 2019, certain non-residents also became liable to UK tax on gains generated from the disposal of shares in "property rich companies". This new charge applies to sales of shares in companies that derive at least 75% of their value from UK property by shareholders that have held at least 25% of the company at any time in the previous two years. This rule also applies to widely-held property investment funds.
This "balance" between UK residents and non-UK residents in relation to UK property is "tilted" by the proposed SDLT surcharge for non-residents buying UK property, as discussed in the last edition of Tax Aware.
For now, the inheritance tax liability that applies to non-domiciled persons holding UK residential property through close companies has not been extended to UK commercial property or to widely-held companies.