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From April 2019 non-UK residents will pay UK capital gains tax on UK real estate sales

A major change will take place on 1 April 2019 for companies and 6 April 2019 for individual owners of UK property. From this date any sale of UK property will be liable to UK capital gains tax on the increase in value from this date. The increase in value before this date will not be taxed under the new rules. Accordingly values at the beginning of April 2019 will become important for years to come.

The UK unlike many other countries used not to tax non-residents on capital gains and had no specific reporting requirements for non-residents buying or selling residential or commercial property. This made the UK an attractive place in which to invest. In some cases, the countries in which the investors were resident only taxed gains arising from property sales in their home country and so the UK property capital gains ended up being completely tax free.

There has been in recent years a change in this position bringing more non-residents into UK capital gains (such as residential property in 2015) but the new rules from April 2019 bring almost all non-resident sales into UK capital gains including commercial property. In addition, a tax return must be filed which can be shared by the UK with tax treaty countries.

There are anti-avoidance rules for non-residents buying in a limited company and then selling the shares. Some double tax treaties are helpful here in avoiding a gain in such circumstances though the UK government is pushing for these to be amended. This route is unlikely to be worthwhile in the medium term and there are always issues especially for smaller investors in selling shares which affects the price.

What non-residents can do

  • Sell before April 2019. This way you are not caught by the new rules.

  • Get a valuation as at 1 April 2019. This is a sensible move. You do not need to file the valuation with the UK tax authorities but when you sell, a written valuation done at the time by a reputable estate agent is unlikely to be challenged. It does not prevent you getting another valuation later. For higher value properties it may be sensible to get a full valuation carried out be a chartered surveyor rather than an estate agent’s letter.

  • If you own it through a company and have a low balance sheet value, then take advice on revaluing it in your accounts. HMRC will look at the balance sheet.

  • You do not have to rebase to April 2019 value if say the property has gone down in value since you bought it and April 2019.

  • There are exemptions if property is used as part of a trade, say a pub or nursing home. You need professional advice on this.

  • Review any trust arrangements if shares in a property company are held in trust.

Problem areas

  • The valuation date is at the same time as the Brexit date. This may be unfortunate if there is a sharp decrease in property prices because of say a “hard Brexit”.

  • There is anecdotal evidence of non-residents bringing sales forward which is bad for prices and valuations.

  • A high valuation at April 2019 is good for capital gains tax but could cause issues with Inheritance Tax if there is an unexpected death.

  • Grants of new leases of commercial property in run up to April 2019 will be relevant to capital valuations.

  • Rent reviews around April 2019 should be considered very carefully as they will be relevant to valuations.

  • The UK works out tax liability in Pound Sterling and all valuations will be in pound sterling. This introduces additional tax risks for non-residents who are based in another currency area. A hard Brexit may result in a sharp drop in Sterling.

September 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser