From 6 April 2019, non-residents will be subject to UK Capital Gains Tax on the sale of UK commercial property. This came in to effect for UK residential property from 6 April 2015.
The new regime also extends to indirect disposals through sales of interests in property-rich companies, property unit trusts and partnerships. A non-resident investor holding a 25% or greater interest in an entity that derives 75% or more of its gross asset value from UK real estate will now be caught.
Rebasing will apply so that non-resident individuals and trustees will be exposed on gains that have accrued from 6 April 2019 on disposal of UK commercial property, while companies will be exposed on gains accruing from 1 April 2019.
Nothing can be done to escape the capital gains tax charge from now; however, there are certain things that can be done now to potentially help eliminate, reduce or delay the tax burden of this change.
Firstly, if not done already, non-UK resident commercial property investors are encouraged to arrange a formal valuation of their properties as soon as possible.
A formal valuation will be beneficial in any CGT discussions with HMRC once a property is sold. This is because in the longer term, the benefit of a valuation report prepared around the base date becomes more enhanced. In particular, the report will help where it becomes more difficult to value a property retrospectively. A valuation document prepared around the base date will carry more weight as evidence of value than one prepared in a few years’ time when the property is due to be sold.
Companies can take advantage of losses in that any losses are available to offset against other gains for computing Corporation Tax – the losses will not be restricted to gains on UK property.
There are also some potential exemptions that may apply, but again these are only relevant in cases where it is a trading business – the trading exemption and Substantial Shareholding Exemption. These are discussed in detail in our recent blog in connection with Opco-Propco structures, which can be found here. Rollover relief, which defers chargeable gains on certain assets if they are replaced with new business assets may also be available in the case of a trading business.
Please also note that currently UK commercial property is not ‘excluded property’ for inheritance tax purposes, and therefore it can currently be held via an offshore company such that it is not considered a UK asset and not subject to UK inheritance tax for non-domiciled individuals.
