As part of the Autumn Budget, the Government has launched a consultation on extending UK capital gains tax (CGT) so that, from 6 April 2019, CGT will be payable by non-residents who dispose of:
At present, non-residents do not pay CGT at all, unless the capital gain arises on a disposal of UK residential property. These proposals are substantial changes. Clearly, they could have a negative impact on inward investment, but the Government’s rationale is clear: UK land is a national resource and the country in which the land is situated should have primary taxing rights.
It is frustrating that the Government did not make these changes in April 2015 when CGT was extended to non-residents disposing of residential property in the UK (NRCGT). There is already a dizzying combination of CGT rules and these new proposals will only add to that.
The new CGT charge (new NRCGT) would apply to all non-resident individuals, trusts and personal representatives and normal UK CGT rules, rates and allowances would be valid. That currently means a rate of 10% or 20%. Residential property is charged at upper rates of 18% or 28% and it is conceivable the new NRCGT rates would be aligned with those.
Non-UK resident corporate bodies would be liable under the UK’s corporation tax rules; the rate from April 2019 is expected to be 19%.
The existing NRCGT regime on disposals of residential property would be extended to widely-held companies. At the moment, NRCGT applies only to close companies (broadly speaking, companies with five or fewer participators).
Some non-resident companies are also in the ATED-related CGT regime. The Government is considering changing this to simplify matters – here’s hoping!
The new NRCGT will not be retroactive so:
The only alternative method of calculating the gain will be to use the property’s acquisition cost as the base cost. This will benefit those who would avoid a gain using that method.
Widely held, non-resident companies will be liable for the gain post-April 2019 on disposals of both residential and commercial UK property.
There could be more than one rebasing point where property is mixed-use (ie part residential and part commercial) or there has been a change in use.
The proposal is that a non-resident would be subject to the new NRCGT if:
April 2019 rebasing will be the only method of calculation; only the gain from April 2019 would be brought into charge.
The UK already has a number of anti-avoidance rules which could also come into play when a non-resident disposes of UK commercial property or an interest in a property rich entity. These include rules that impose a CGT charge on a UK resident participator in a non-resident close company, or on a UK resident beneficiary benefiting from a non-resident trust. These rules will remain relevant for the capital gain attributable to the period up to 5 April 2019.
The Government wants non-residents to be in the same position as UK residents so the consultation document highlights the availability of reliefs including:
The consultation closes on 16 February 2018. We will keep you updated.