While on the face of it the recent UK budget announcement by the Chancellor of Exchequer seemed relatively non-threatening, it is perhaps the finer print of the 2017 Autumn Budget that fiduciary businesses and UK-connected individuals and corporates need to take note of which is somewhat less pleasant to digest.
I think it’s safe to say that the main issue comes as a result of the announcement that there will be a consultation in relation to the implementation of UK tax on gains realised on disposals of all UK property by non-residents, however held. This proposed change, due to become effective from April 2019, will bring into scope gains realised on disposals of commercial property. In addition, the proposed changes will also potentially capture indirect sales of UK properties (i.e. sales of company shares containing enveloped UK property) however there are certain conditions that must apply in order for these to be within scope of the new charge, such as any non-resident having a 25% or greater interest in the entity and for the entity to be ‘property rich’ (75% of the gross assets at the time of the disposal represent UK land). It will also terminate the exemption currently in place in respect of residential property held by widely held companies (companies in which the public are substantially interested) which were previously exempt from capital gains tax on sale).
On the plus side, there is currently no intention to implement an annual charge for retaining commercial property within an offshore Special Purpose Vehicle (as there is for residential property – the famous Annual Tax on Enveloped Dwellings ) and there is time to undergo a rebasing exercise given that the gain subject to tax will be limited to appreciation in the property’s value that accrues from April 2019 to the date of sale. It will therefore be necessary to carry out valuations on commercial properties held.
Some other bad news however is that non-resident companies holding UK property will now also be subject to the UK corporation tax regime with effect from April 2020. While this would appear at first glance to be beneficial (given that corporation tax -currently at 19% but this will have reduced to 17% by 2020 – is a lower rate of tax than the current 20% income tax, it is likely that due to restrictions which apply to the corporation tax regime on interest and loss relief that the tax liabilities on rental income are likely to be higher for a significant number of commercial property investors.
However it wasn’t all doom and gloom. For our UK clients, the personal allowance for the next UK tax year has been increased to £11,850 as has the amount at which these individuals pay the higher rate of tax which has been set at £46,350. In addition, although not as much as was hoped for, the Chancellor did announce further financial commitments for the NHS and, according to the OBR forecast, they will find jobs for another 600,000 people by 2022 despite a current lack of productivity growth in the UK. The abolishment of stamp duty for purchases of property up to the value of £300,000 will also look to assist first time buyers although property prices will need to come down in order to make this truly beneficial.
The proposed changes as highlighted above are certainly going to have a noteworthy impact on non-resident property investors and given the additional compliance work that the new corporation tax regime for non-resident companies may bring with it, the offshore centres should be prepared for a period of change.
Despite this, there is a positive slant for PraxisIFM due to the breadth and coverage of our services and jurisdictional network. In the case of the expected effects of the ongoing property consultation, its clear from the proposals that pension schemes holding UK property (residential or commercial) will be unaffected by the extension of the Capital Gains Tax (CGT) legislation. This specifically includes overseas pensions and is a happy effect of the legislation brought in in the finance bill of 2017 which aligned overseas pensions with UK pensions for these purposes. PraxisIFM’s pension companies Trireme and Cavendish can provide Qualifying Non UK Pensions Schemes (QNUPS) from both Guernsey and Malta written under contract or trust, depending on personal circumstances. All UK property held in these pensions will remain ring-fenced from UK CGT and inheritance tax both now and post-April 2019. Our QNUPS are available for all those holding UK property assets regardless of residence including those living in the UK.
PraxisIFM has recently opened a new London office providing services in relation to onshore vehicles and we are therefore confident that we will be able to assist with appropriate planning and if required, a re-structuring strategy. As always, we are committed to excellent customer service and will be communicating the proposals to our clients to plan ahead of the changes coming into force.
FOR MORE INFORMATION CONTACT:
Mob: 07484 179543
Tel: 44 (0) 1481 755558