From April 2020, non-UK resident companies that carry on a UK property rental business or have other UK property income will be liable for corporation tax (currently 19-25% depending on your companies profits) rather than income tax.
Also, from April 2019, all residential property gains realised by non-resident companies have been brought into the corporation tax regime. This includes resident property disposals by diversely held non-resident companies. Before 2019, only disposals by closely held companies were chargeable. Gains made on commercial properties are also subject to corporation tax.
Individuals
Non-residential individuals disposing of the UK residential property are subject to NRCGT at the higher rates apply to residential property gains (currently 18% – 28%).
From April 2019, gains on the disposal of any UK commercial property held by a non-resident “person” are taxable. The property is re-based to its market value on 5th April 2019 when calculating the gain. An election can be made to use the total gain (or loss) since acquisition. Gains on non-resident individuals and certain trustees are subject to capital gains tax at the standard rates of (10% to 20%).
Interests in “Property rich companies or trusts”
From April 2019, a disposal by a non-resident of an interest in an entity, for example, if the company or trusts are ‘property rich’, is now within the scope of either capital gains tax or corporation tax (for companies). This only applies if the non-resident holds an interest of 25% or more in the entity or has done so in the two years ending with the date of the disposal (including the period before April 2019).
- Interests held by certain related parties are taken into account in determining whether the 25% test is met.
An entity is property rich if, at the time of disposal, 75% or more of the value of asset disposed of derives directly or indirectly from UK land (whether commercial or residential). This test is based on the gross asset value of the entity. Considering the market value of its assets at the time of the disposal, without any deduction of liabilities such as loan finances.
There are specific exemptions for gains arising from the disposal of interests in “trading companies”, both before and after the disposal. These could be beneficial for property-rich trading companies such as hotels, care homes etc.
Double taxation treaties between different jurisdictions may impact how tax is applied sale of shares in land-rich entities. Alternatively, some investment funds may qualify for the valuable substantial shareholdings exemption that applies to structures meeting qualifying institutional investor requirements.
Fusion Business Services are experts in Landlord Accountancy
For a free and impartial consultation or to discuss how to set up and manage your property portfolio, please give our expert consultants a call on 0800 2294020, or schedule a free consultation for a time that suits you here. We also provide a landlord accountancy service for those who would prefer not to have an SPV (landlord accountancy with self-assessment).
