In the Autumn Budget 2017, the UK government announced that from April 2019 tax will be charged on gains made by non-UK residents on the disposal of all types of UK immovable property (including commercial property), extending existing rules that apply only to residential property. These changes are being introduced to more closely align the tax treatment of non-UK resident owners of UK immovable property with that of UK residents, and to reduce the incentive for multinational groups to hold UK property through offshore structures.

In addition, new rules are being introduced to extend the rules to “indirect” sales and disposals of UK immovable property made by closely or widely-held non-resident companies. Indirect disposal rules will apply where an entity is “property rich”, which is broadly where 75% or more of its gross asset value (so not including liabilities such as loan financing) at disposal is represented by UK immovable property. The charge will apply where a person holds, or has held at some point within the five years prior to disposal, a 25% or greater interest in the entity. As part of this change, the proposed new rules will remove the current exemption from capital gains tax of widely-held non-UK resident companies (which currently applies on disposals of interests in residential property).

The new rules will likely affect nearly all property investment and fund structures holding UK immovable property and introduce new tax charges for non-residents investing directly or indirectly in such property. However, HMRC notes that the impact of the proposals on the funds industry will need to be carefully considered and the intention is to introduce targeted exemptions for certain institutional investors such as pension funds. There will also be a rebasing of property values as at April 2019 for the purposes of calculating gains.

The closing date for comments is 16 February 2018.

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