Property Tax – Non-resident chargeable gains tax and corporation tax changes

The measure

Following an announcement at Autumn Budget 2017, draft legislation was published in July 2018 covering the extension of non-resident chargeable gains tax (NRCGT) to non-resident commercial property owners from 6 April 2019. Further draft legislation and a technical note covering the application of NRCGT rules to funds will now be published on 7 November 2018. Additionally, the government announced that for UK property-rich REITs, the exemption for capital gains on disposals of properties will be extended to share sales of entities that are UK property-rich. Again, further details with be provided in draft legislation on 7 November 2018.

In addition, as previously announced from 6 April 2020 non-resident corporate landlords (NRLs) will be chargeable to corporation tax at 17% (rather than income tax at 20%) on rental income. This will require them to electronically file UK corporation tax returns on a financial year basis (rather than a fiscal year basis). Following initial draft legislation published in July, updated draft legislation was published alongside the Budget. HMRC expects to publish guidance on the transition during 2019.

Key aspects of the draft legislation include:

  • bringing the loans and derivative contracts that a NRL is party to for the purposes of its property business within the scope of the existing corporation tax rules on loan relationships and derivative contracts, including the UK’s corporate interest restrictions and anti-hybrid rules;
  • confirming that carry forward income tax losses as at 5 April 2020 will transfer into the corporation tax regime, and be capable of offset against the NRL’s future property business profits without restriction;
  • bringing NRLs within the scope of the UK corporation tax loss restriction and group relief rules for any losses arising on or after 6 April 2020. This will include the restriction to the use of brought forward losses above £5 million per annum (on a group basis) to 50% of profits, together with the more flexible group relief rules that effectively now permit brought forward as well as current period losses to be surrendered to profitable group companies.
  • confirming that capital allowances will transfer from the income tax regime to the corporation tax regime at tax written down value, i.e. on a tax neutral basis.


Who will be affected?

Non-resident holders of UK real estate. 


When will the measure come into effect?

NRCGT changes are to be introduced from 6 April 2019.

NRLs will be chargeable to corporation tax on their rental income from 6 April 2020.

Our view

The proposed changes were announced some time ago and should come as no surprise to non-resident owners of UK real estate. The draft legislation and the technical note covering NRCGT for funds will, when published on 7 November 2018, be of particular interest to a number of investors in UK real estate.