Spotlight on UK and non-UK property investors – Tax changes from 6 April 2019

The start of the 2019/20 tax year approaches, from 6 April, together with a host of UK property tax changes that will fundamentally impact holding structures and the reporting and payment obligations of both domestic and foreign investors. We set out the highlights, which may affect you or your clients, below.

1. Reduction of stamp duty land tax (“SDLT”) reporting and payment window to 14 days: The time limit for purchasers (both UK and non-UK) to file an SDLT return on the acquisition of property and make payment will be reduced from 30 days to 14 days following the effective date of any land transaction on or after 1 March 2019.

2. Reduction of CGT reporting and payment window for all property gains to 30 days: From 6 April 2019, non-UK tax residents will need to report and pay CGT on residential and commercial property disposals within 30 days of the date of disposal. Currently, only non-resident CGT disposals need to be reported and paid to HMRC within 30 days of the date of disposal for direct disposals of residential property. From 6 April 2020, UK tax residents will also need to report and pay CGT on all property disposals within 30 days of the date of disposal (rather than the current deadline of 31 January following the end of the tax year in which the sale is made). For disposals by UK residents, the new reporting and payment requirements will not apply where the gain on the disposal is not chargeable to CGT, for example where the gains are covered by private residence relief or unused losses.

3. Extension of non-resident’s capital gains tax (“CGT”) to non-resident individuals and corporation tax to non-resident companies holding UK commercial property: To date, foreign investors have not had to pay UK tax on UK property gains (except on direct disposals of UK residential property). This radically changes from 6 April 2019 when foreign investors will be subject to CGT on disposals of all UK residential and commercial land, held directly or through “property rich” holding vehicles, such as company, partnership or trust structures. Tax rates will apply at a rate of 10% or 20%, depending on whether the individual is a basic or higher rate UK taxpayer under the CGT regime and 19% for companies (falling to 17% from 1 April 2020) under the corporation tax regime. It will still be necessary to distinguish between commercial and residential property for the purposes of applying the higher CGT rates for individuals (18% and 28% respectively).There are exemptions for trading entities and for foreign investors with holdings in property rich entities of less than 25%. Rebasing to April 2019 will be available where the asset was not previously within the UK tax net. Specific rules under the new UK tax regime will apply to UK “property rich” collective investment vehicles. The collective effect of the changes is substantial and means property holding structures used to date to acquire and hold UK real estate need to be reviewed.

4. Abolition of Annual Tax on Enveloped Dwellings (“ATED”) related CGT: As part of the measures to extend non-resident’s CGT, ATED-related CGT will be abolished from 6 April 2019. This means that there will be a single calculation under the new non-resident CGT rules for companies owning residential property under the corporation tax regime. Many clients have already restructured to fall outside of the ATED regime. The ongoing cost to clients of ATED can be significant. Please contact us about restructuring options if you have not already done so.

5. UK property income of non-UK resident companies: From April 2020, non-UK resident companies that carry on a UK property business or have other UK property income will be charged corporation tax (at 17% from 1 April 2020) on that income, rather than the income tax basic rate of 20% at present. From 2020, non-resident landlords including those already known to HMRC through registration under the non-resident landlord scheme will need to re-register with HMRC for corporation tax.

6. Consultation on SDLT 1% surcharge for non-residents: The Government is currently consulting on an SDLT surcharge of 1% for non-residents buying residential property in the UK, which would apply to both individuals and ‘non-natural’ persons (broadly, companies, partnerships and trusts). What this means in practice is that non-residents could face a maximum stamp duty land tax rate of 16% when purchasing a high value UK residential property (above £1.5 million). The consultation proposes a ‘simplified’ residence test for individuals, applying to individuals who have spent fewer than 183 days in the UK in the 12 months prior to the property purchase. To avoid discouraging non-UK residents from moving to the UK, the surcharge will be repaid in the event that the 183-day limit is exceeded in the subsequent 12 months (i.e. if someone become UK tax resident for SDLT purposes).

Please contact our Private Client and Tax teams for further information and assistance.