A number of measures in the draft UK Finance Bill 2018/19, published for public comment on 6 July 2018, have significant tax implications for non-resident investors in UK property. Other provisions include incoming EU anti-tax avoidance rules. We have summarised these changes in today's post.
Broad changes are proposed to legislation governing the taxation of property income, adding to the raft of measures affecting non-residents that have been introduced in recent years. These changes include that non-resident companies with a UK property business will be chargeable to corporate tax and not income tax from 6 April 2020. A further change is proposed to capital gains tax and corporate tax on UK property gains. This move would extend the scope of the UK's taxation of gains accruing to non-UK residents to include gains on disposals of interests in non-residential UK property from 6 April 2019. It also extends the charge on gains on disposals of interests in residential property to diversely held companies, those widely held funds not previously included, and to life assurance companies. The measure also taxes non-UK residents' gains on interests in UK property-rich entities (for example, selling shares in a company that derives 75% or more of its value from UK land), also from 6 April 2019.
The Bill will also introduce a requirement for UK residents to make a payment on account of Capital Gains Tax following the completion of a residential property disposal and expands an existing similar requirement for non-residents (including UK residents that make disposals in the overseas part of a split tax year) from 6 April 2019.
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On the anti-avoidance front, the bill includes provisions to transpose parts of the EU's two Anti-Tax Avoidance Directives into UK law (ATAD I and ATAD II). These Directives are intended to ensure that member states comply with at least the minimum standards proposed by the OECD in its base erosion and profit shifting (BEPS) project.
Specifically, the Finance Bill makes changes to corporation tax exit charges, including the rules for deferred payment of exit charges on a transfer of assets or tax residence between the UK and a European Economic Area (EEA) state by companies resident in the UK or an EEA state. These changes adapt existing rules to implement ATAD I.
The second aspect of the EU-related changes tackles hybrid mismatches, arrangements which can result in either double deductions for the same expense, or deductions for an expense without the corresponding receipt being fully taxed. The bill counteracts mismatches by treating an amount equal to the mismatch as income arising to the UK resident multinational company in the UK. Mismatches which arise in relation to "disregarded" permanent establishments are counteracted by bringing amounts back into charge for corporation tax purposes.
EU member states are required to transpose the requirements of ATAD I by 31 December 2018, and ATAD II by 31 December 2019.
The 2018/19 Finance Bill marks the first major fiscal event under the Government’s new timetable for tax policy planning, intended to extend the period of time that major tax legislation is discussed before implementation. As such, the bill was published considerably earlier than has traditionally been the case, and the consultation process concluded on 31 August. This means that the proposals have been finalised and legislated for well ahead of their scheduled introduction.