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.