New CGT on commercial property coming April 2019 - what overseas investors should know
New tax changes coming April 2019 for commercial property owners outside of the UK.
After 6 April, commercial property disposals will be subject to Capital Gains Tax (CGT). If you're an overseas investor, read to learn how you may be able to reduce your potential CGT liability on your commercial investment from 6 April 2019.
On 7 November 2018, the government published The UK Finance (No.3) Bill. The Bill introduced to remove CGT exemption on commercial property held by non-UK residents beginning 6 April 2019. This brings the UK in line with other global jurisdictions but at lower rates of tax. CGT will now also be imposed on the sale of company shares, where a substantial amount of company assets consist of UK real estate. This includes both residential and non-residential property.
The tax will apply to:
- Foreign companies
- Non-UK resident individuals
- Overseas trusts
- Jersey Property Unit Trusts (JPUT)
Those exempt from the tax will be:
- Sovereign Wealth Funds
- Pension funds
Foreign companies will be charged at the corporation tax rate, which is currently 19% and will fall to 15% by April 2020. Private individuals will be taxed at the normal CGT rate of 20% for commercial property and 28% for residential property. Anti-avoidance rules have been put in place to prevent these groups from avoiding the tax by restructuring.
Non-UK commercial property investors will be prudent to arrange a formal valuation of their properties before 6 April 2019. A formal valuation will be beneficial in any CGT discussions with HMRC once a property is sold. It is not essential to have the valuation carried out before April, but, it will enable the non-UK resident investor time to add value to the property. Value can be added through re-gearing a lease, implementing a programme of refurbishment or improvements. By adding value to the property today, or before 6 April 2019, the level of profit or gain on a future disposal is reduced.
It's worth noting that the valuation for CGT is only required when there is a disposal. If the intention is to sell a commercial property in the near future, the valuation should be straightforward (depending on the prevailing market conditions). In the longer term, the benefit of a valuation report prepared around the base date becomes more enhanced. In particular, the report will help where it becomes more difficult to value a property retrospectively. A valuation document prepared around the base date will carry more weight as evidence of value than one prepared in a few years’ time.
Strettons’ Valuation team values property for statutory purposes such as Capital Gains Tax, Probate and Inheritance Tax. We are here to advise on your property valuation and property management requirements, in particular to non-UK residents preparing for the new CGT tax change.
For any questions or enquiries, please contact Philip Costa or Peter Costello on our valuation team.