Non-residents and UK real estate: the April 2019 changes

The Finance Act 2019 has greatly extended the territorial limits of UK tax where capital gains are concerned. Non-resident persons are now taxable not only on UK residential property gains, but also on UK commercial property gains. However, the most radical aspect of the FA 2019 is the introduction of new rules allowing non-resident persons to be taxed on gains realised on the disposal of assets that are not themselves UK land, but derive some or
all their value from UK land.

Non-residents have for some time had an advantage over UK residents when it comes to the taxation of UK commercial real estate, because unlike most other major jurisdictions the UK does not exercise its full taxing rights
as afforded by international tax rules.

The government now attempts to ‘level the playing field’.

From 6 April 2019, a single UK tax regime will apply to sales of both residential and commercial UK real estate by non-residents, comprising

  1. a new UK tax charge for gains on “direct” sales of UK real estate; and
  2. a new UK tax charge for gains on “indirect disposals” of UK “property rich” interests. This will bring within the scope of UK tax disposals by non-residents of certain companies, partnerships and unit trusts holding UK real estate.

The applicable rate of UK tax will be 19% (Falling to 17% from April 2020) for non-resident companies caught by the new rules and, for non-resident individuals and others, up to 20% (in the case of commercial property) and up to 28% (in the case of residential property).

The new tax charge(s) will in each case only apply to gains arising since 6 April 2019 (i.e. property held at that date will be rebased to its current market value).

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