79: Non-residents disposing of UK property – 10 things you need to know (Part 2)

This is our second blog post in which we highlight ten key points arising from the Government’s proposal to impose a UK tax charge on all non-residents disposing of both UK residential property and commercial property. You can read our previous blog post which covers the first five points here.

1. The Government’s proposal will extend a UK tax charge to ‘indirect disposals’ of UK immovable property. Indirect disposals for this purpose mean disposals by non-residents of interests in certain offshore entities. An indirect disposal will be subject to UK tax where the disposal is of an interest in an offshore entity which is:
   1. ‘property rich’ (ie 75% or more of the value of the asset disposed of derives from UK land); and
   2. where the owner of the entity holds, or has held at some point within five years prior to the disposal, a 25% or greater interest in the entity.
2. Immovable property which will for the first time come within the scope of UK taxation will be rebased as at April 2019 so that only gains attributable to increases in value from April 2019 will be chargeable to UK tax. Non-residents making direct disposals will also have the option to use original cost of the property rather than its April 2019 value where a gain would arise under rebasing but not if the original acquisition cost is used.
3. A charge should not arise where the UK has a treaty with the non-resident’s jurisdiction which does not afford the UK taxing rights on property gains. Specifically, where the treaty allocates rights to capital gains on the disposal of shares to the non-resident jurisdiction, and does not have a ‘land rich’ article, the right to taxation will be allocated to the non-resident jurisdiction. As a result, indirect disposals should not then be subject to the new rules.
4. An ‘anti-forestalling’ rule has been introduced with effect from 22 November 2017 specifically aimed at preventing the exploitation of tax treaty provisions to deliberately put profits or gains arising on the disposal of UK property beyond the taxation rights of the UK (so-called ‘treaty shopping’).
5. In respect of all disposals the seller will need to report the transaction to HMRC within 30 days of the disposal taking place (consistent with the NRCGT regime). The Government is also looking to impose a reporting requirement on certain third-party UK-based advisors who have sufficient knowledge of a transaction which gives rise to a disposal where they have reason to believe disclose has not been made to HMRC. Any such third party advisors are likely to include legal and tax advisors.

Comment

Although a consultation document was published, the actual scope, commencement date and shape of the proposed rules appear somewhat settled, with the Government only seeking views on the mechanics of imposing this new charging regime. The consultation period is now closed and we currently await the outcome of this and further clarity from the Government in relation to the likely shape of the new rules.