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Home » News & Insights » Changes to Capital Gains Tax For Offshore Properties

Changes to Capital Gains Tax For Offshore Properties

Posted on 25th October 2018

Proposed new Capital Gains Tax (CGT) charges

There are two new charges:

Disposal of UK commercial property by non-UK residents

CGT for non-UK residents currently only applies to disposals of UK residential property held by non-widely held companies. CGT will be extended to apply to disposals of any UK property, i.e. including of non-residential property and of residential property by widely held non-UK resident companies.

Disposal of shares in “property rich” companies

CGT will also be imposed on the sale of shares of companies whose assets consist of, to a substantial extent, UK real estate (either residential or non-residential). Despite the introduction of non-resident CGT to disposals of UK residential property in 2015, the disposal of shares in property holding companies remained a “safe haven”. This will no longer be the case from April 2019, when the new rules will apply if:

  • the company is “property rich” (i.e. if 75% or more of its value derives from UK property). The disposal could be of the company which directly owns the UK property, or a parent or holding company of a subsidiary holding UK property. Where more than one company is sold, complicated rules apply to work out whether, in aggregate, 75% of the value of the companies derives from UK property; and
  • the non-resident (and related partners) hold, or at some point in the previous two years have held, at least a 25% interest in the equity.

Responses to the consultation expressing concern about the “cliff-edge” nature of the 75% property richness test, and the risk of an entity straying in and out of the 75% criterion have been downplayed by the government, who state that the 75% test mirrors the provisions in international treaties.

The government also agreed to reduce the time period looked at in respect of the 25% interest criterion from five years, down to two years, which should lessen the administrative burden of the new rules.

 

 

 

 

 

 

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Disclaimer:- The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. The Avanti Group (UK) Ltd will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any action taken without seeking appropriate professional advice

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