Capital Gains On Non-Resident Landlords

Written by Paul Windsor on 29 November 2018

New rules, known as Non-Resident Capital Gains Tax (NRCGT) will come into effect on 6th April 2019 and are, according to HMRC, ‘expected to have a significant impact on businesses’.

The new measure extends the scope of the UK’s taxation of capital gains accruing to non-UK residents on disposals of interests in any type of UK land. So, in addition to the existing taxation of residential property, capital gains tax will now be levied on gains on disposals of interests in non-residential UK property.

The tax will also include non-UK residents’ gains on interests in UK property rich entities, for example, shares in a company that derives 75% or more of its value from UK land. There will be options to calculate the gain or loss on a disposal using the original acquisition cost of the asset or using the value of the asset at commencement of the rules in April 2019. Both options will be available for both direct and indirect disposals.

Certain reliefs have been afforded to offshore collective investment vehicles (CIVs) such as funds, JPUTs and GPUTs. The draft legislation confirms that certain income transparent, UK “property rich” offshore CIVs will be able to elect for transparency for the purpose of NRCGT and that certain widely-held overseas funds (whether currently transparent or opaque) will be able to elect for exempt treatment. Helpfully, the new legislation confirms that offshore CIVs that are partnerships will remain transparent for gains and will not, therefore, have to make such an election.

UK and offshore Real Estate Investment Trusts (REIT’s) will continue to be exempt from CGT on both direct disposals of UK property and this exemption will be extended to apply to disposals of shares in UK property-rich companies held by a REIT (including an offshore REIT).