Despite being designed to attract investment from overseas investors over 50 years ago, a tax policy is set to be withdrawn following the announcements within the recent budget. Creating widespread disapproval, the Chancellor has revealed that non-UK residents will be subject to UK tax charges when selling their residential and commercial properties, as of April 2019.
The UK Property Investment Tax Policy
The current tax policies employed for property investment within the UK have been in place for many years, and yet the changes to the UK tax policy come as no real surprise. The last few years has seen more and more UK tax charges be applied to overseas investors investing in UK investment property, and so changes like these were almost expected to follow suit at some point in time.
In fact, the UK is considered to be one of very few more economically developed countries that don’t charge tax to non-domestic residents during the sale of properties. With this in mind, industry experts are suggesting that these changes are made as a move to bring the UK’s tax policy more in line with other developed countries.
Property Investment Tax Changes in the UK
As well as UK tax charges for selling UK property, non-UK residents will also be subject to corporation tax when selling 25% of their property portfolio, but only when at least 75% of their gross asset value is from UK property. Profits generated from April 2019 will be subject to the charges, with any previous historic profits being exempt from the charges. However, for the residential property already considered part of the non-residential CGT regime, the tax charge will apply to any profits made from April 2015.
It is now also known that UK based overseas pension funds won’t face capital gains tax when selling UK property and companies that are owned by at least 80% investment trusts, pension funds or life assurance companies will also be exempt from the tax charge.
The Future of Overseas Investors
It is expected that many overseas investors will sell their property and restructure their portfolios as we enter 2018; however that won’t be the end of overseas investing within the UK. With the new tax changes set to affect overseas investors, it is anticipated that many will look to take advantage of onshore structures to hold their UK investments. A UK holding company may be the perfect solution for many overseas investors, especially with UK corporation tax to be reduced in April 2020 to just 17%.
Other options for overseas investors include Real Estate Investment Trusts (REITs) or open-ended property funds (PAIFs), both of which are exempt from tax charges. It is anticipated that overseas investors will really consider the ability to convert their existing funds and joint venture vehicles into UK REITs, meaning that overseas investment into the UK property market will continue to thrive.