UK property taxation for overseas investors; the pace is hotting up!
Further changes have been proposed which seek to extend the UK’s grip on the taxation of UK property owned by non-UK residents. Investors in all UK property, not just residential property, are targeted. This marks a fundamental change in how UK commercial property, owned by non-UK residents, is to be taxed in the UK. Any Gibraltar resident investors holding UK property should take note.
Draft UK legislation was published in July 2018. Currently the proposals would have the following effect:
From April 2019, gains made on the disposal of all types of UK immovable property, directly or indirectly held, will be chargeable to UK tax, regardless of the residency of the investor. The inclusion of indirect disposals means that, for example, gains made on the disposal of shares in a company holding UK property rather than the property itself, could fall within the tax charge.
For Gibraltar resident investors, this means that, from April 2019, gains made on the disposal of all types of UK property will be within the scope of UK tax. For Gibraltar resident individuals or trusts UK capital gains tax will need to be considered, and for Gibraltar resident companies it will be UK corporation tax that will be payable on any gains realised on the disposal of the property.
This is a significant change for Gibraltar investors in UK commercial property (Gibraltar investors in UK residential property are already within the scope of non-resident capital gains tax or annual tax on enveloped dwellings capital gains tax).
Most property not already within the scope of UK tax (i.e. non-residential property) will be rebased from April 2019 so that only gains arising after that date will be chargeable. Such disposals have to be reported to HMRC within the tight timeframe of 30 days.
It is worth noting however that there is currently, and looks set to continue, a specific exemption from UK tax for gains made by certain overseas pension schemes.
From April 2020, non-UK resident companies will be brought within the charge to UK corporation tax on their UK rental profits (such companies are currently liable to UK income tax on these profits).
This is a rapid pace of legislative change. Keeping up to date can pose considerable challenges for non-UK resident investors. They are often unaware of such developments and fitting into the UK’s Self-Assessment system can involve delays and difficulties. Add to this that so much of the UK’s property tax regime has been built on a piecemeal basis and the difficulties stack up!
Quite apart from these changes, the penalties associated with recovering lost tax where an offshore position exists are to be dramatically increased from 1 October 2018. From then, the cost of ‘getting it wrong’, however innocently, is set to increase. Add to this the increasing tax transparency and enforcement powers internationally, the pressure on property investors to keep up to date can only intensify.
Therefore, for any Gibraltar residents owning (directly or indirectly) UK property, now is the time to review their UK tax position, to address those changes that have already occurred and to prepare for those which lie ahead.
BY LYNETTE CHAUDHARY
International Tax & Research Director, STM Fiscalis Ltd.