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Key changes to the taxation of non-resident investors in UK real estate

Taxation of non-resident investors in UK real estate

The Real Estate team take a look at the pivotal proposals announced in the UK Government’s 2017 Autumn Budget, which will see changes to the taxation of non-resident investors in UK real estate from April 2019.

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Key taxation changes for non-resident investors in UK real estate- men window

In his Autumn Budget on 22 November 2017, The Chancellor of the Exchequer Phillip Hammond announced proposals to amend the rules governing the taxation of non-resident investors in UK property. The proposals include abolishing the current exemption from capital gains tax for non-resident investors from April 2019. In addition, from April 2020 non-resident corporates holding UK property will be subject to UK corporation tax on their rental income profits, rather than UK income tax as at present.

These changes represent a fundamental departure from the existing regime and investors will need to consider the commercial implications to ensure they fully understand the impact of the proposals.

The proposed changes include:

  • From April 2019, all disposals by non-residents of UK property (commercial and residential) will be subject to capital gains tax
  • Some indirect disposals of UK property will also be subject to the new rules.
  • There will be a rebasing for tax purposes to April 2019 values for both property and shares in property rich companies (optional for properties, but compulsory for property rich companies).
  • Exempt investors (such as sovereign immune bodies and pension schemes) may still be indirectly impacted where disposals are made by entities in which they have invested that are not exempt in their own right.
  • From April 2020, non-resident companies holding UK property will become subject to UK corporation tax in respect of their rental income profits.

What action should investors be taking:

  • Exit routes and assumptions should be reassessed, along with existing structures, to take into account the potential impact on current pricing.
  • Investors will need to carry out valuations of their properties and property rich companies as of 1 April 2019 .
  • Exempt investors may need to reconsider the structures through which they invest, particularly where they have invested into collective investment schemes.
  • Tax exempt vehicles such as a UK-REIT might be considered .
  • The impact of these changes on proposed acquisitions should be carefully assessed.

Please contact Andy Pyle, UK Head of Real Estate & Real Estate Transaction Services, andy.pyle@kpmg.co.uk to discuss the proposed changes or implications this will have.

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