The Government announced as part of its Autumn Budget 2017 that from April 2019 UK tax will be charged on gains made by all categories of non-UK resident sellers on both direct and indirect disposals of all types of UK real estate, extending existing more limited rules that apply only to residential property. This announcement represents a fundamental change to the current rules governing the taxation of chargeable gains on UK property.

Given the changes made over the past few years to level the playing field in respect of the taxation of UK property as between UK residents and non-UK residents, the Government's announcement was not wholly unexpected and whilst what the Government has announced is a consultation which will run to 16 February 2018, it is clear that many aspects of the reform have already been fixed (such as who is in scope, the commencement date and the core features of the provisions governing direct and indirect disposals) and the Government is in fact only consulting to ensure that the legislation is sufficiently well targeted. The Government will publish draft legislation in late summer 2018.

The Government has also confirmed plans to bring non-resident companies within the scope of corporation tax in respect of rental income from April 2020.

What are the key changes?

The new rules are intended to create a single regime for disposals of interests in both residential and non-residential property. Currently only the direct disposal of an interest in UK residential property by a non-UK resident individual, trust, personal representative or closely-held company falls within the charge to UK tax on chargeable gains. Direct disposals of residential properties by non UK resident widely-held companies are not caught, nor are indirect disposals of residential property or any direct or indirect disposal of commercial property.

With effect from April 2019, gains arising on the disposal by a nonresident of any type of UK property will be subject to corporation tax or capital gains tax in respect of gains accruing after April 2019 (with a rebasing as at April 2019). This will also apply to indirect disposals – i.e., disposals of shares in "property rich" companies (which, broadly speaking, are those where 75% or more of the company's gross asset value at disposal is represented by UK real estate) by a person who holds, or who has held at some point during the 5 years prior to the disposal, a 25% or greater interest in the company. Although the new charge will apply only to gains arising on disposals after commencement, the 25% test will take into account ownership before that time and will also consider the interests of the non-resident's related parties in determining whether the threshold is met. The new rules will catch both a direct disposal of the interest in the property rich company as well as a disposal of an interest in a holding company or similar with a structure of entities beneath it which, taken together, meet the property richness test.


In order to help HMRC enforce the new rules the Government intends to impose a reporting requirement in some circumstances (for example, in the context of an indirect disposal) on certain UK advisers who are aware of the conclusion of the land transaction.


Anti-forestalling measures will be introduced with immediate effect to prevent restructuring pre-April 2019 to make use of the UK's Double Tax Treaty network in such a way that would prevent the UK imposing the tax. The anti-forestalling rule will remain in force as an anti-avoidance measure after the new charge is introduced, until such time as relevant treaties have been amended to prevent any risk of abuse.

One regime

In response to the March 2017 consultation on bringing non-resident corporate landlords into the charge to corporation tax in respect of rental income, many respondents highlighted the complexity of the Annual Tax on Enveloped Dwellings-related capital gains tax rules. In consequence, the Government intends to structure the new rules announced yesterday in such a way that, as far as possible, one regime applies for all disposals of interests in UK real estate by nonresidents, and that the regime is robust and cohesive. As a result, the Government will be considering the case for harmonising the existing ATED-related gains rules within the wider regime for taxing nonresidents' gains on UK property and how to meet the objective of simplification in doing so.

More changes to come?

These changes will greatly reduce the attractiveness of using offshore companies to hold UK real estate and it would not be surprising to see the Government look to extend Stamp Duty Land Tax to the transfers of shares in property rich companies in the future to remove any benefit in holding a UK property through an offshore company.

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