I’ve written before about the various new tax regimes that have come out of HMRC since 2012 specifically targeting UK real estate.
It started in 2013 with Annual Tax Enveloped Dwellings (“ATED”) and a new capital gains tax system for high value residential property.
This was followed by the introduction of non-resident capital gains tax on all UK residential properties and most recently, the inclusion of all UK residential property, however owned, within the inheritance tax regime.
The end result being that, no matter the ownership structure, UK residential property is now subject to capital gains tax and inheritance tax. If you use a company, it may have to pay an annual charge to HMRC should the property be valued over £500k as at 5 April 2017 (previously 5 April 2012), whether you or the entity owning the property are UK resident or not.
Throughout the introductions and changes to the taxation of residential property, commercial property was largely left alone, but not anymore.
Changes have been brought in which can alter how non-residents are taxed in relation to disposals of land and property; this risks what would previously have been a capital gain, not taxable in the UK, becoming subject to UK corporation tax.
In addition, the capital gains tax regime is being extended to capture commercial property owned by non-residents from April 2019.
There are no proposed changes to the inheritance tax system in respect of commercial property at present but, one has to think it is only a matter of time before both commercial and residential property are brought on to an equal footing.
Add to this the backdrop of the proposed introduction of a public beneficial ownership register for all UK property (something which appears to fly in the face of all the recent GDPR furore designed to protect our privacy) together with uncertainty over Brexit and it is hard to see why investing in UK property would be an appealing proposition.
Even if the lack of privacy created by a publicly available beneficial ownership register for property doesn’t concern you, the burden of administration will no doubt be passed on to the property owner and so there will be more paperwork for you and your trusted advisors to contend with.
The expectation is that there will not be a new regime for collecting tax on gains by foreign investors, simply the current mechanisms will be extended so that non-residents pay capital gains tax on (from April 2019) all UK property disposals.
We will have to await the paperwork but the likelihood is that this will also include gains on indirect disposals of commercial property, where the holding entity is sold rather than the property itself.
It seems now the only remaining methods for HMRC to generate any further tax from UK property would be for the inheritance tax regime to be extended to encompass commercial property, as is being done with capital gains tax.
This doesn’t appear to be on the immediate horizon, but nor has it been ruled out and the capital gains tax extension may be the start of a trend.
The tax situation alone may be enough to put off some of the larger investors and companies who may otherwise have sought to purchase UK commercial property, and then there’s Brexit…
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