RSM Ireland

New regime: UK non-resident capital gains tax on real estate funds

UK non -resident capital gains tax on real estate funds

What has changed?

Following an announcement of a new tax charge in late 2017 UK legislation has now been published. The new capital gains tax on real estate will affect non-UK residents who make gains on the disposal of UK real estate or UK real estate heavy companies and other vehicles.

Summary

Non-UK residents will be pulled into the UK CGT regime for the first time from 6 April 2019 if they dispose of UK land and property.

Prior to this new legislation targeting capital gains tax on real estate, non-UK residents were only taxed on disposals of residential property, but from 6 April 2019, all UK land (including commercial property) will come within the scope of UK taxation.

In addition, non-UK residents will be subject to UK tax on the disposal of assets that derive at least 75% of its value from UK land, so called ‘property-rich’ companies. This charge will usually only apply where the person making the disposal has at least 25% interest in a property rich company.

There are various exemptions which are available, including in relation to properties used in trade and exemptions for foreign pension funds and certain charities and sovereign wealth fund.

There is an optional rebasing for commercial property as of 5 April 2019 which means only CGT gains arising after this date will be taxed.

The UK can only tax a non-resident investor if the terms of any double tax treaty between the UK and the jurisdiction of the non-resident allow it. Most double tax treaties to which the UK is a party allow the UK to tax non-residents on direct disposals of UK real estate as well as disposals of property rich vehicles.

Compliance procedures

With the new CGT regime, a new compliance system is being introduced, which non-UK residents will have to follow in reporting disposals of UK land and paying the associated tax.

Non-UK residents disposing of UK land (or assets that derive at least 75% of its value from UK land) must file a return within 30 days following the completion of the disposal, and a payment on account must be made at the same time.

The amount of tax to be paid is calculated under the normal rules, including using any allowable losses at the date of disposal.

Should you require assistance regarding this capital gains tax on real estatenew, please contact Susan Blake (sblake@rsmireland.ie) or your usual RSM contact.

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