Under the new rules, announced in Wednesday’s budget, capital gains tax will apply to UK land and commercial property when disposed of by non-doms.
Tim George, partner in Withers private client & tax group said non-doms, for whom holding UK commercial property through non-resident structures is relatively common, risked being caught out.
He argued that the new rule, which comes into effect in April 2019, could result in a non-resident and non-dom investor exodus from commercial properties.
“With Brexit falling in 2019, and the other non-dom status changes, this isn’t an impossibility,” he said.
“The rules offer rebasing of property values from 2019 to mitigate the immediate tax impact and the rate of tax is comparable with many other major jurisdictions, but this is unlikely to be much comfort.
“Will the tax stifle the UK commercial property market? We certainly saw that the increased stamp duty land tax (SDLT) rates on residential property resulted in the overall tax take tanking.”
Should’ve seen it coming
“Finally, there are complex rules around overseas ‘property rich’ companies holding, directly or indirectly, assets with 75% or more of the value represented by UK properties, where a disposal of the shares will also be subject to tax,” continues George. “These rules catch residential as well as commercial properties.
“It would be hard to see how HM Revenue & Customs could possibly enforce the new rule in the absence of the planned register of beneficial ownership for non-resident companies owning UK property. This was announced in April 2017, so perhaps we should all have seen the new tax coming!”
Walter Boettcher, chief economist at Colliers International, agreed the repercussions could be serious: “This seems likely to have significant implications for the investment market, particularly London where foreign investors currently account for around 75% of central London investment.
“There is talk of exemptions for pension funds, but we await clarity and indications on how the market might react. In the meantime, this is yet another layer of uncertainty,” he concluded.