Historically, non-UK resident companies were not subject to UK tax on gains arising from sales of UK property.
This changed when the Annual Tax on Enveloped Dwellings (“ATED”) regime was introduced in April 2013. As well as imposing an annual charge on UK residential property held by Non-Natural Persons (“NNPs”), this
introduced a capital gains tax (“ATED-CGT”) charge on the sale of UK residential property held by NPPs. Changes to the ATED regime were announced in 2014, extending the regime to properties worth over £1million from 1 April 2015 and £500,000 from 1 April 2016.
In addition, with effect from 6 April 2015, a new CGT charge applies to any non-UK resident who disposes of an interest in a UK residential property irrespective of its value (the non-resident CGT, “NRCGT”). The NRCGT rate for companies is 20% and the charge only applies to gains arising after 5 April 2015. The taxpayer may choose whether to calculate his gain using the market value of the property as at 5 April 2015, or to time-apportion the historic gain, with only the post 5 April 2015 part being taxed.
The UK therefore has two capital gains taxes on UK residential properties owned by non-UK resident companies; an ATED-CGT and a NRCGT. In a case when both potentially apply, the ATED-CGT takes priority over the NRCGT and is charged at 28% rather than 20%. It is worth noting that some of the exemptions from the ATED legislation, including the exemption for residential property used as part of a qualifying property rental business, do not apply to the NRCGT. Similarly, there is no de minimis threshold for the NRCGT.
The non-resident is required to notify HMRC of the chargeable property sale within 30 days of the completion. Payment of tax is either by payment on account due within 30 days of completion or via the completion of a self-assessment non-resident landlord tax return. Notably, lawyers and other parties involved in the sale will not be required to withhold tax from the sale proceeds.
CGT was first introduced in the UK in 1965 and for almost 50 years there was no UK CGT charged on non-UK resident companies. With the extension of CGT to all non-UK residents disposing of UK residential property and the existing ATED regime, gains on disposal of UK residential property will now be subject to UK CGT. Whilst this is a big change from the historical position, it brings the UK in-line with most modern tax systems which give priority taxing rights to the country where the real property is situated. It is therefore considered unlikely that, despite these changes, the UK property market will be substantially less attractive to overseas investors.
For more information, please contact your usual Blick Rothenberg contact or Genevieve Moore, partner on +44 (0)20 7544 8815 or at firstname.lastname@example.org