Regime change for non-UK resident owners of UK land or property
By Lynette Chaudhary, International Tax & Research Director, STM Fiscalis Ltd
The changes to extend the UK’s grip on the taxation of UK land and immovable UK property (UK land or property) came into law in April. These changes are onerous and therefore any Gibraltar resident (or in fact any non-UK resident) owner of UK land or property should take note.
All types of UK property
From 6 April, gains made on the disposal of all types of UK land or property, directly or indirectly held, are chargeable to UK tax, regardless of the residency of the owner.
The inclusion of indirect disposals means that, for example, gains made on the disposal of shares in a company holding UK land or property will fall within the UK tax charge. This applies if the company is “property rich” and the shareholder has at least a 25% interest. Whilst there is a tax exemption for indirect disposals if the property is used in the course of a qualifying trade, the simple activity of letting out property is in itself not a trade.
For Gibraltar resident owners, this means that gains made on the direct or indirect disposal of all types of UK land or property are within the scope of UK tax. For Gibraltar resident individuals or trusts non-resident UK capital gains tax (NRCGT) needs to be considered, and for Gibraltar resident companies UK corporation tax is payable on any gains realised on the disposal of the UK land or property.
The applicable rate of UK tax depends on the circumstances, for example:
♦ whether the property is residential
♦ if it’s a direct or indirect disposal
♦ if it’s a disposal by a company or by another entity or person, and
♦ for individuals the amount of their taxable income and other gains in the tax year in which the disposal occurred.
Such disposals have to be reported to HMRC within the tight timeframe of 30 days, with, in some cases NRCGT paid within this timeframe. Even if a disposal does not result in a gain or it is sold at a loss, it must still be reported.
It is worth noting however that there is currently, and looks set to continue, a specific exemption from UK tax for gains made by certain overseas pension schemes.
UK commercial property
This is a significant tax change for Gibraltar owners of UK commercial property, who have been outside the scope of UK tax on any gains until now (Gibraltar owners of UK residential property have been within the scope of NRCGT since 2015).
Most property not already within the scope of UK tax (i.e. UK commercial land or property) has been rebased from April so that only gains arising after that date are chargeable. It is therefore advisable to obtain valuations of such land or property in order to know the base cost for any future disposal, although there may be rare occasions where it may be advantageous not to rebase the value of the land or property.
Further change for non-UK resident corporate owners
On a related note, from 6 April 2020, non-UK resident companies will be brought within the charge to UK corporation tax on their UK rental profits (such companies are currently liable to UK income tax on their profits).
Challenges and review for the future
This rapid pace of tax change poses considerable challenges for non-UK resident owners of UK land or property. They are often unaware of such developments and fitting into the UK’s Self-Assessment system can involve delays and difficulties. The 30 day filing requirement also means owners have to act quickly on completion in order to avoid costly penalties and professional guidance should be taken to ensure that any tax filings are made in good time.
Furthermore, the UK penalties associated with recovering lost tax where an offshore position exists were dramatically increased from 1 October 2018. This is a direct consequence of the ‘failure to correct’ regime that was introduced and which increases the penalties on undisclosed or understated income and gains arising before 6 April 2017. Couple this with increasing international tax transparency and information exchange, and the pressure on non-UK resident owners of UK land or property to keep up to date intensifies.
Therefore, for any Gibraltar residents owning (directly or indirectly) UK land or property, they should review their UK tax position now in order to plan for the future and to avoid any nasty surprises. Planning ahead is essential and a review undertaken in good time can save considerable cost and anxiety in the long term.