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Changes to the taxation of overseas investors in UK land

Legislation has now been published on the extension of CGT or Corporation Tax to gains arising to all non-UK resident owners on the disposal of all UK land and interests in property rich companies. The main new development is in relation to non-UK resident collective investment schemes (CIVs). The default position is that these will be treated as if they are companies chargeable to Corporation Tax. Similarly non-resident investors in non-UK resident property rich CIVs will be treated as if they were investing in a company so that a disposal by a non-resident investor of their interest in the CIV will be chargeable to CGT as a disposal of an interest in a UK property rich company, and for these purposes the amount of their interest is irrelevant. (They do not have to own 25%, as company shareholders do).

However non-UK resident UK property rich CIVs that are transparent for income can make an irrevocable election for transparency for capital gains and they will be treated like a partnership, so that the investors will be treated as if they directly held an interest in the underlying assets of the fund. This treatment will apply for all investors in the fund, both UK and non-resident. This may be more suitable for smaller, joint-venture arrangement CIFs with set investors rather than ones which change ownership a lot, particularly where the investor qualifies for some CGT relief.

Alternatively, certain CIVs can make an election which will exempt them from Corporation Tax on gains accruing on all direct disposals of UK land and indirect disposals of UK land. The investors, however, will remain taxable under first principles on any disposal of an interest in a property rich CIV. The conditions for exemption are that the CIV must either meet the genuine diversity of ownership condition, or; be a non-close company whose ordinary share capital is traded on a recognised stock exchange, or; be a non-close company, at least 75% of the total value of which would be returned to investors on a winding up, would be subject to UK tax. In addition the exempt CIV must have made reports to HMRC of disposals of interests in it by investors within the 24 months prior to the disposal requiring exemption, although no reports are required in respect of disposals of interests in the CIV occurring prior to 6 April 2019.

December 2018

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DX 53 Chancery Lane

Telephone: +44 (0)20 7629 7411
Fax: +44 (0)20 7629 2621
Email: bh@boodlehatfield.com

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