LONDON: Historically, the United Kingdom has not taxed capital gains on real estate disposals when the seller was not a UK resident.
The Development: Coming into line with most of the world’s jurisdictions, the UK government has announced broad plans, which are still in final development, to levy taxes on real estate sales by non-UK residents.
Looking Ahead: While the plans are subject to consultation through mid-February 2018, it is highly likely that a version of the current proposal will be implemented in 2019.
In its most recent budget, delivered on 22 November 2017, the UK government has announced wide-ranging plans to subject gains on the disposal of UK real estate (or shares in land-rich companies) to UK tax. This measure would take effect in 2019, and the following Commentary sets out in broad outline the government proposals. While the measures are subject to consultation (with the deadline for responses being 16 February 2018), the government has indicated that it is not consulting on whether the measure should be implemented. It is therefore very likely that some version of the proposals outlined below will be implemented.
Historically, the United Kingdom did not seek to tax capital gains realised on the disposal of UK real estate held as an investment where the taxpayer concerned was not resident in the United Kingdom. (In contrast, the United Kingdom did tax profits on the disposal of real estate held as a trading asset.) Over time, various measures gradually restricted this general exemption. In particular, due to concerns about the overheating UK (and London specifically) residential market, measures were introduced to tax gains on the sale of residential (but not commercial) real estate. These measures focused first on high-value residential real estate and then on the residential market generally.
It is likely that if the new measures pass, most taxpayers will restructure their real estate holding structures to fall within the corporation tax regime.
