The Government has published draft legislation intended for inclusion in the Finance Bill 2018/19. This follows its consultation on the proposal, which closed in February 2018. (Please see our article on this for further information). The draft legislation includes provisions to bring the disposal of all UK land, not just UK residential property, by non-UK residents within the scope of capital gains tax.
Under the provisions, non-UK resident persons who dispose of:
- interests in UK land (direct disposals); or
- interests in companies that derive at least 75% of their gross value from UK land and where the person has (or had in the preceding two years) a 25% or greater interest in the company (indirect disposals)
will be charged to capital gains tax/corporation tax on such disposals.
Non-UK resident individuals, partnerships and trustees will be subject to capital gains tax, and companies will be subject to corporation tax. The charge will apply with effect from 6 April 2019. In addition, the specific charge to tax on ATED-related chargeable gains will be abolished completely. However, there are provisions for ring fenced allowable ATED-related CGT losses to be used for corporation tax purposes to the extent they have not already been deducted from gains.
The draft legislation includes exemptions from charge when an indirect disposal is made of an interest in an entity where the underlying UK land is used for trading purposes both before and after the disposal, or if exempt for some other reason other than being non-UK resident.
When a relevant disposal is made, it will be possible to elect for the tax charge to be calculated by reference to the original acquisition value or the value as at the anticipated commencement date of the rules in April 2019. This will apply for both direct and indirect disposals. Losses may also be used when calculating the net gain on disposal.
Provisions have also been included with respect to payments on account of capital gains tax for disposals of UK residential property and will affect both UK residents and non-UK residents. The general rule will be that a return in respect of the disposal must be delivered to HMRC within a ‘payment window’ of 30 days following the completion of the disposal, and a payment on account made at the same time. For UK residents this rule will not apply where the gain on disposal is not chargeable to tax, for example, where principal private residence relief applies.
The draft legislation also includes provisions to state that with effect from April 2020, non UK companies which receive UK source rents as a property rental business will be subject to corporation tax (rather than income tax, as is currently the case).
The draft legislation has been published for consultation and may be subject to amendment. The consultation will close on 31 August 2018.