UK tightens grip on taxation of UK land and property

Featuring Adam Kefford | 27th November, 2017

Not too far in the distant past, the disposal of UK land and property by non-UK resident persons was only subject to UK tax in limited circumstances. Changes since 2012 have seen a gradual change to this position and have seemingly culminated with significant changes being announced as part of the Autumn Budget.

Back in 2012, the UK introduced ATED-related capital gains tax on high value UK residential property. From 6 April 2015, the disposal of all residential property by non-UK resident persons was brought within the scope of UK CGT albeit with various exceptions. Then in 2016, changes to the transaction in land rules looked to ensure that development profit arising on the disposal from UK property development could not escape the UK tax net.

Last week, HMRC released a consultation document which announced plans to bring the disposal of all UK land and property within the scope of UK tax – regardless of the residence of the person selling the land.

These changes are due to have effect from April 2019 (1 April for companies and 6 April for non-corporate entities such as individuals and trusts. As a result, the disposal of all residential and commercial property will be subject to UK tax – either corporation tax or capital gains tax.

The main changes are:

  • All UK land and property will be subject to UK tax, thus reducing the current limitation of residential disposals only.
  • Removal of some of the exemptions currently available on residential disposals e.g. disposals by widely-owned non-resident companies will be taxable.
  • Indirect disposals – the disposal of an interest in an entity that substantially derives its value from UK immovable property will be subject to UK tax.

Existing UK land and property owned by non-residents which will be brought within the scope of UK tax for the first time in April 2019, will be rebased to market value in April 2019. This means that only growth in value after this date will be subject to UK tax.

An anti-forestalling rule is in place which has effect from 22 November 2017. This rule will counter-act arrangements undertaken to avoid the impact of the new rules by taking advantage of provisions within the UK’s treaty network – essentially preventing treaty shopping.

It is likely that further changes are on the way with the strong prospect of UK commercial property being brought into the scope of UK IHT regardless of ownership structure.

Detailed draft legislation has not yet been released and the outcome of the consultation document is likely to have some influence on the final legislation. However, HMRC have stated that the core provisions outlined in the document and summarised above will be implemented in April 2019. Our Property Accounting Specialists will continue to monitor developments over the next few months and will share our thoughts and comment as we continue to consider the implications of the impending changes.

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