A fundamental change to the current rules relating to the taxable gains of UK property was announced earlier this week in the Autumn Budget 2017.
We have taken a look at this issue in more depth and also pulled out some other key changes announced by the UK Government that specifically affect the offshore world.
From April 2019, UK tax is to be charged on the gains made by non-residents on the disposal of any immovable property in the UK. This means that non-resident commercial property investors will, for the first time, be subject to UK capital gains tax (CGT).
Disposals of commercial property by non-residents are currently exempt from UK CGT. This change in tax laws will create a common regime for taxing the gains on disposal of UK residential and commercial property.
Offshore companies will be subject to UK corporation tax on the gains made and individuals and trusts will be subject to CGT.
Properties not already chargeable to tax will be able to re-base the value of their commercial property to April 2019 values so that only gains accruing after April 2019 will be taxable.
Taxpayers who make a chargeable disposal, direct or indirect, will then only have 30 days in which to report the disposal to HMRC. Corporation taxpayers must register for corporation tax and make returns in line with the usual deadlines.
At the present time, interest on loans taken out by offshore companies to finance the purchase or improvement of properties can be deducted in computing the profits which are subject to UK tax via the non-resident landlord scheme. This is likely to change in April 2020 when non-UK resident companies are taken out of the scope of income tax (non-resident landlord scheme) and will instead be taxed under the Corporation tax system.
As a result, on the one hand non-resident companies will be subject to a lower rate of tax as corporation tax will then be 17% compared to the current 20% income tax paid, but companies are likely to pay tax on a higher profit figure.
This is as a result of the possible capping of interest allowable under corporation tax rules, which are broadly capped at 30% of EBITDA. Meaning that it may result in more UK tax being paid than is currently the situation for those companies which have debt within them.
Other key points of the Autumn Budget 2017:
i) There will be an increased time limit, effective from April 2018 for HMRC to go back on offshore non-compliance, moving from a minimum of 6 years up to a minimum of 12 years;
ii) A consultation will be issued in 2018 on the taxation of trusts, with a view to making this simpler, fairer and more transparent;
iii) There will be a reform of penalties for the late payment of tax or late submission of returns.