Non-resident CGT: proposed extension to all UK immoveable property

5 Apr 2018

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The 2017 Autumn Budget announced that all owners of UK property will be within the scope of UK tax from April 2019.

This represents a significant change to the rules for taxing chargeable gains on UK immovable property. Since April 2015 the UK has taxed non-residents on disposals of UK residential property, but from April 2019 this will be extended to all other UK property – however held and whether residential or non-residential. Companies will be subject to corporation tax and other taxable persons to capital gains tax (CGT).

The government is consulting on the finer details, but it is clear that many key elements of the new regime are already fixed.

Direct disposals by non-residents

With effect from April 2019, all direct disposals of UK land and buildings will become chargeable to UK tax. This will include disposals of non-residential land and buildings, and of residential property held by non-resident ‘widely-held’ companies. At the moment, the charge to UK CGT on disposals of residential property by non-resident companies extends to close companies only.

Calculation of the gain or loss on a direct disposal

The rate of tax will be the same as for an equivalent disposal by a UK resident. For corporate bodies this will be the UK corporation tax rate and for individuals, trusts and personal representatives it will be the relevant UK CGT rate, including the appropriate annual exempt amount.

Only the portion of any gain/loss arising on or after 1 April 2019 (for companies) and 6 April 2019 (for all other persons) will be taxable/relievable. This will be achieved by ‘rebasing’ the property value to the appropriate date in April, although there will be provisions preventing a gain arising on rebasing where an overall loss is realised on the disposal. Those within the current non-resident CGT charge will continue to rebase to (and be taxed from) April 2015.

Capital losses arising to a non-resident company on disposals of UK property will be available to offset against that company’s gains, and where the relevant conditions are met the rules for electing to reallocate gains and losses within the group will apply as normal.

For all other non-residents, any losses will be ring-fenced for use against gains on other UK properties arising in the same or future years, with no distinction between gains and
losses arising on residential and non-residential property.

If a non-resident becomes UK resident, any unused UK residential property losses will be available as general losses against other types of capital gain from that point.

The current rules for rolling over gains on business assets will be extended to include, where the requirements are met, disposals made by non-residents that fall to be dealt with under the new rules.

Indirect disposals by non-residents

The new charge will also apply where UK property is disposed of indirectly (for example where a non-resident holds a property through a company, and the shares, rather than the underlying property, are sold).

For an indirect disposal to be taxable, the following two conditions must be met at the date of disposal:

  1. The entity being disposed of must be ‘property rich’; and
  2. The non-resident must hold a 25% or greater interest in the entity, or have done so within the five years ending on the date of disposal.
Property rich test

This will apply where, at the time of disposal, 75% or more of the value of the asset disposed of derives from UK property. The test will be based on the gross asset value of the entity – ie without relief for any mortgage or other interest costs – and will use the market value of the asset/s at the date of disposal.

The ownership test

This test will look at the interest which a non-resident, together with related parties, has held in a property rich entity at the date of disposal, or at any point during the previous five years.

Indirect disposals of groups of entities

There will be situations where the transaction includes a disposal of a group of companies or trusts, or a structure of both companies and trusts. In these cases the ‘property rich’ test will be applied to the totality of entities being disposed of in the transaction. So, were a non-resident to dispose of shares in a holding company which was itself not property rich, but owned a company that was, both would need to be considered in order to determine whether the 75% property rich test was met.

Calculation of the gain or loss on an indirect disposal

Where an indirect disposal falls to be taxed under these rules, the relevant gain/loss is that on the actual asset being disposed of (eg shares), calculated under the usual UK rules. Where the relevant conditions are met, the Substantial Shareholding Exemption will apply. As with direct disposals, there will be rebasing to April 2019, but there is no adjustment to take account of any element of value not represented by UK property.


Mr A disposes of his 100% holding in a company (B Ltd) for £10 million in December 2020. B’s only assets are UK property worth £9 million, and non-UK property worth £1 million. Mr A has a base cost for CGT purposes, after rebasing, of £7 million. The disposal meets the criteria for an indirect disposal of UK property (as Mr A holds more than 25% of the shares in B, and 90% of B’s gross assets derive from UK land). Mr A’s gain will be £3 million (full proceeds, less the £7 million rebased cost).

Impact of double tax treaties

It will be important to take account of the relevant double tax treaties when considering the new provisions. For direct disposals, taxing rights will generally sit with the UK as the country where the property is situated, but the position can be more complex for indirect disposals. To reflect this, anti-forestalling provisions took effect from 22 November 2017 which prevent holdings from being restructured so as to avoid the charge.

ATED – related CGT

The government intends to structure the new rules so that as far as possible one regime applies for all disposals of interests in UK immovable property by non-residents (albeit with a separate rebasing date for those within the current non-resident capital gains tax (NRCGT) charge). It is, therefore, considering harmonising the Annual Tax on Enveloped Dwellings (ATED)-related CGT regime with the new rules. This could allow for welcome simplification of the ATED-related CGT regime and its interaction with the NRCGT rules.

Reporting requirements

Reporting and payment requirements will depend on whether a disposal falls to be taxed under the CGT or corporation tax regimes. For transactions chargeable to CGT, the reporting obligations will be the same as the existing ones for NRCGT. This means that the tax return and the tax will be due within 30 days of the disposal (although if the non-resident is already registered for self-assessment, the CGT can instead be paid by the usual self-assessment payment deadline of 31 January following the year of disposal).

Where the disposal falls into the corporation tax regime, the non-resident, if not already registered for corporation tax self-assessment (CTSA), will be required to register for CTSA and report the disposal within the usual CTSA timescales (ie, generally, tax will become due nine months from the end of the accounting period in which the disposal takes place), with the tax return due 12 months after the end of the accounting period. If no accounting period exists, the accounting period will be one day long, beginning and ending on the date of disposal. It would therefore appear that companies will benefit from a much longer period to report disposals than taxpayers within the CGT regime.

Indirect disposals and third party reporting

The reporting obligations present compliance challenges for non-residents who are subject to the charge and HM Revenue & Customs (HMRC), in terms of both awareness and enforcement, particularly in cases where a disposal of interests in UK property is made by one non-resident to another.

For this reason, in addition to the obligation on the person making the disposal, the government intends to require UK advisers involved in the transaction to notify HMRC that a disposal has taken place.

This requirement is likely to have the following conditions:

  • The adviser is based in the UK.
  • The adviser has received fees for advice or services relating to a transaction that could fall within the rules.
  • The adviser has reason to believe, in a business capacity, that a contract for disposal of UK property has been concluded that could fall within the rules.
  • The adviser cannot reasonably satisfy themselves that the transaction has been reported to HMRC.
  • The time limit for third party reporting will be 60 days.
  • There will be provisions in respect of recovery of tax from a non-resident company, to enable recovery to be made instead from a UK representative of the company, or from a related company.

The government proposes that the existing penalties for failure to notify, and for late or incorrect returns, will apply to non-residents disposing of UK non-residential property. These will also apply in relation to the proposed reporting requirement on third parties.

Other developments

The 2017 Autumn Budget confirmed that from April 2020 non-resident companies will come within the charge to UK corporation tax on income from UK property. This will mean that for the year ended 5 April 2020, such companies will be within the charge to income tax in relation to property income, but subject to corporation tax in respect of property gains.

The UK government has also recently reconfirmed its commitment to introducing a register of the beneficial ownership of non-resident entities holding or acquiring UK property. Draft legislation is expected later this year, with the register taking effect in 2021. Once introduced, this will impose a further reporting requirement on non-residents in relation to any UK property holdings.

For more information regarding any of the issues raised here, please speak to your usual Saffery Champness partner. Alternatively, contact Clare Cromwell or Ben Melling.