Until now, non-UK residents have been subject to tax on capital gains only in respect of UK dwellings. With effect from April 2019, gains arising from disposals of all UK land will be subject to CGT or corporation tax. The main provisions can be summarised as follows:
1. Assets coming into charge under the new regime will be re-based to April 2019.
2. For a company with at least 75% of its gross assets comprising UK land, the charge to tax is extended to a disposal of shares in the company by a substantial shareholder. A shareholder who has held at least 25% of the shares, at any time in the period of 2 years prior to the disposal, is within these provisions. Such a shareholder is described in the legislation has having a "substantial indirect interest" ("SII") in the land. For disposals of shares, the following exemptions may be relevant:
where the company or a connected person is carrying on a trade. This would appear to exempt the sale of shares in, for example, an offshore propco, in a typical propco/opco structure for ownership/operation of a hotel. However, this will be of limited benefit given that the propco itself will be within the scope of the new charge on the disposal of the land, so a purchaser of shares in the propco will need to consider discounting the price paid by reference to tax on the latent gain.
Qualifying institutional investors (for example pension funds and charities) may benefit from the Substantial Shareholdings Exemption even if the land holding company is not trading.
Relief under a double tax treaty (for example, Luxembourg) may apply, subject to anti-avoidance provisions. The Government will be re-negotiating treaties which have this effect
3. The regime, as applied to funds, is extremely complex and contained in around 50 pages of legislation. Very broadly:
the legislation is based on the concept of a collective investment scheme ("CIV"), which are essentially tax-transparent entities such as JPUTs, REITS and non-UK equivalents and an "Offshore CIV" which is a CIV constituted offshore.
For an offshore CIV, a transparency or exemption election can be made so that gains made by the entity are treated as being made by the shareholders (so that shareholders, such as pension funds, can benefit from their exempt status).
An investor in a CIV is deemed to meet the SII test, regardless of the size of its shareholding and regardless of whether or not the CIV has made a transparency or exemption election. Here, there is an exception for funds marketed as investing no more than 40% in UK land, subject to detailed conditions.
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