UK Government proposes to tax gains on sales of UK property or UK property companies by offshore investors.
Offshore investors may become subject to UK tax on gains made on UK commercial property, if the UK government's proposed changes to real estate taxation in the Budget on 22 November are taken up.
These include a significant increase in UK tax charged on offshore investors in UK property – currently rental income from UK investment property is taxed in the UK wherever the investor is, but capital gains on the sale of UK commercial property generally are not subject to UK tax if the investor is nonresident.
If the changes (which will be the subject of consultation) are introduced then from April 2019 UK tax would be charged on such gains wherever the seller is resident, whether it sells the property directly or sells an entity that owns the property. Corporate sellers would be subject to UK corporation tax, currently at 19% but expected to reduce to 17% in April 2020.
This is a material change in the tax position for overseas investors, though it does follow a recent theme of government trying to collect more tax from the UK real estate sector generally. Concern has already been raised that it may have implications for the flow of new capital to the UK, and representations will undoubtedly be made to government along those lines.
Although strictly the Budget announced a consultation in this area rather than a definite proposal, it seems likely that something similar to this will be enacted in due course. As a result, we have already started to see proposed acquisitions being affected by the announcement.
If you would like to discuss any of the issues raised, please do not hesitate to contact either Leona Ahmed or Lee Sheldon on contact details below.