Update on the new rules affecting UK property

The draft clauses in the UK Government's Finance (No.3) Bill prescribe a number of significant changes to the taxation of UK real estate. The Bill is set to form the Finance Act 2019 which is due to be enacted in March 2019. The changes will principally target the ownership of commercial property and will affect individuals and companies whether they are resident in or outside the UK.

Capital Gains Tax for non-residents disposing of UK commercial property

Since new rules were introduced on 6 April 2015, non-UK residents have been subject to capital gains tax (CGT) on the gains realised upon the sale of UK residential property. Gains on the disposal of commercial property have not attracted any charge. However, from 6 April 2019, non-UK residents will become subject to CGT on all UK property gains (residential and commercial).

The new rules will apply to both gains from disposals of interests in UK property, as well as disposals of assets (e.g. companies) that are 'property rich'. In broad terms, these are assets that derive at least 75% of their gross asset value from UK land.

It will be possible to ‘re-base' an interest in UK commercial property to its market value as at April 2019.

Similar to the April 2015 rules, 'non-residents' will include individuals, narrowly-held companies and trusts.

Corporation Tax for Non-Resident corporate landlords

From 6 April 2020, non-UK resident corporate landlords receiving UK property income will no longer be subject to income tax but will instead be subject to corporation tax. Under the corporation tax regime, profits are currently taxed at a rate of 19%. Similarly, non-UK resident companies will be subject to corporation tax on disposals of interests in UK property from 6 April 2019.

Benefits for non-residents under the new system

Non-UK residents disposing of commercial property will enjoy the same benefits as a UK resident would. This includes the Annual Exempt Amount, Substantial Shareholdings Exemption and the no gain/no loss intra-group transfer rules.

Income tax losses may be ‘grandfathered’ and carried forward to the corporation tax regime so that they may be offset against UK property business profits chargeable to corporation tax.

ATED-related CGT and Non-resident CGT regimes

The proposed changes will abolish the ATED-related capital gains tax regime (ATED-CGT) and will also absorb the non-resident capital gains tax (NRCGT) regime.

Payments of CGT on account of disposals of UK residential property by UK residents

The draft legislation includes a requirement for both the CGT return and the payment of CGT to be made within 30 days following the disposal of residential property by a UK resident. Under the new scheme, from 6 April 2020, a payment on account must be made and a tax return submitted to HMRC within 30 days of disposal of a residential property by a UK resident. The payment will be credited against the taxpayer's income tax and CGT liability for that tax year. It is anticipated that similar rules will take effect for non-UK residents who are already subject to the requirement to report disposals within 30 days.

Extension of CGT regime for non-residents disposing of residential property

New rules are also set to extend the CGT regime that has applied to non-UK residents who dispose of UK residential property interests to include widely-held companies and funds as well as life assurance companies. Similarly, disposals of interests in 'property rich' entities will be caught.

Stamp Duty Land Tax Filing and payment deadline

From 1 March 2019, in most cases, the time limit for filing a stamp duty land tax (SDLT) return will be reduced from 30 days to 14 days.