Draft Finance (No.3) Bill – points of interest for property owners and private clients

12 July 2018

Draft clauses of the Finance (No.3) Bill, which will eventually become Finance Act 2019, have now been published.  These clauses are open for consultation until 31 August 2018.

The key areas of interest for property owners, private clients and their advisers are as follows.

Changes to the capital gain tax ("CGT") regime for UK property

Non-UK resident commercial property owners are not currently within the scope of the CGT regime. 

However, as previously announced, this will no longer be the case from April 2019 as, from this point (1 April for widely held companies and 6 April for other persons), CGT will apply to UK commercial property and to all non-residents, whether individuals, trustees or companies. 

In line with the extension of the CGT regime to non-residents holding UK residential property in 2015, the CGT charge will only apply to that part of any gain/ loss that accrues after April 2019 (ie commercial property will effectively be rebased from this date for CGT purposes).  Non-resident owners will therefore only be subject to CGT on any increase in value between this date and the date of disposal.  However, it is important to note that where the property owner is a trustee, any pre-April 2019 gains could be taxable on UK resident beneficiaries.

In addition, indirect disposals of UK property (residential and/ or commercial) by non-residents will also be within the scope of CGT.  The draft legislation provides that, with effect from 1 April 2019, new rules will apply to the sale of interests in "property rich" vehicles, where:

  • a non-resident has a minimum 25% holding (or has held such an interest in the last two years) in the vehicle in question; and
  • the entity derives at least 75% of its gross asset value from UK land (residential and/ or non-residential), either directly or indirectly.

The rebasing that will apply to direct disposals will also apply to indirect disposals.

The existing non-resident CGT regime will be absorbed within the new regime and the ATED- related CGT regime will be abolished.

The extension of corporation tax to non-resident companies holding UK property

Non-resident companies are currently subject to tax at the basic rate (20%) on income and gains (provided that the ATED regime does not apply) relating to/ realised on any underlying UK property.

However, again as previously announced, from April 2020, these companies will be subject to corporation tax on their UK rental income (at which time the rate is expected to be 17%).  These companies will be charged to corporation tax on the disposal of UK property from 6 April 2019 as part of the changes detailed above.

Tighter deadlines for payment of stamp duty and capital gains tax

From 1 March 2019, property purchasers will have to pay any SDLT owed within 14 days of completion (in contrast with the current 30 day window).

From April 2020, property sellers will have to pay any CGT due within 30 days of completion.

Changes to entrepreneur's relief

There is good news for business owners.  As previously announced, from 6 April 2019, shareholders will still be entitled to relief even if they hold less than a 5% interest in their business.  This will apply where the reduction in their equity occurs as a result of fundraising for commercial purposes by means of a share issue.

Extension of offshore assessment window

Again, as previously trailed, the time limits for assessing offshore tax non-compliance will be increased to at least 12 years.  The amendments will have effect in relation to income tax and CGT assessments from 2013/14 in cases where the loss of tax is brought about carelessly, and from 2015/16 and subsequent years, for other cases (where not already subject to the 20 year time limit).

This extension will apply for inheritance tax to chargeable transfers taking place on or after 1 April 2013 where the loss of tax is brought about carelessly and 1 April 2015 for other cases not subject to a longer time limit.

If you would like to discuss the implications of any of these changes to your circumstances, please get in touch with your usual Wilsons contact.

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