Update on the proposal to tax gains on land and buildings held by non-UK residents

In 2017, the Government proposed widening the scope of taxation on UK property gains for non-residents. We now have greater clarity on the measures, which have been enacted in Finance Act 2019.

Property 573187804
Zoe Thomas, Ray Abercromby, Claire Perrett
Published: 21 Feb 2019 Updated: 04 Aug 2022

In 2017, the Government proposed widening the scope of taxation on UK property gains for non-residents. We now have greater clarity on the measures, which have been enacted in Finance Act 2019. Although the changes may appear to be straightforward, we have modelled the impact of the new rules in various scenarios and the effect on existing and future UK property investments may be substantial. Those affected may need to take action.


The 2017 Autumn Budget saw Government proposals to widen the scope of UK tax for non-residents to include gains on all UK property and certain interests in ‘property rich’ businesses. The measures are intended to align the tax treatment of non-UK resident investors with that of UK residents who are already subject to tax on all their gains and to reduce tax mitigation through holding UK commercial property in offshore structures.

The consultation ran from 22 November 2017 to 16 February 2018 and was followed by a period of technical consultation before the legislation was finalised in the 2018 Budget. Only gains accruing from April 2019 will be taxable, with a rebasing exercise to be undertaken to value the assets at that date (see below for more detail). Anti-forestalling measures were introduced from 22 November 2017 and a targeted anti-avoidance rule aims to prevent any perceived abuse of the new rules.

There are two new charges:

Disposal of UK commercial property by non-UK residents

Capital gains tax (CGT) for non-UK residents currently only applies to disposals of UK residential property, with an exemption for widely-held companies (where ownership is wider than a single individual or small group of shareholders). This will be extended to apply to disposals of any UK property - commercial or residential – including property owned by widely-held non-UK resident companies (for example certain funds). A gain will be subject to corporation tax for companies and CGT for other persons, such as individuals and trustees.

Disposal of shares in ‘property rich’ companies

Tax will also apply on the disposal of shares in companies whose assets comprise, to a substantial extent, UK commercial or residential property. Despite the introduction of non-resident CGT to disposals of UK residential property in 2015, the disposal of shares in property holding companies remained a safe haven. This will no longer be the case from April 2019, when the new rules will apply if:

  • the company is property rich (i.e. if 75% or more of its gross asset value derives from UK property). The disposal could be of the company directly owning the property, or a parent or holding company of a subsidiary holding the property. Where more than one company is sold, complex rules will be applied to work out whether, in aggregate, 75% of the value of the companies derives from UK property; and
  • the non-resident (and certain related parties) hold, or at some point in the previous two years have held, at least a 25% interest in the company.
    Concerns were raised during the consultation process about the cliff-edge-nature of the 75% test and the risk of an entity straying in and out of the 75% level.  The Government downplayed this, saying the 75% test mirrors the provisions in international treaties.

The Government also agreed to reduce the time period for the 25% interest criterion from five years down to two years, which should lessen the administrative burden of the new rules.

Re-basing opportunity

As was the case with the introduction of non-resident CGT for residential property, the acquisition cost of assets affected by the changes (both the direct and indirect charges) will be re-based to the value on the date on which the changes come into force (i.e. April 2019). Alongside this provision, the new rules provide that:

  • a taxpayer can elect not to re-base, which might be helpful where, for example, property has gone down in value;
  • if the impact of the election is to create a loss on an indirect disposal, that loss will not be an allowable loss; and
  • non-UK resident companies that subsequently become UK resident may still re-base. The same will not apply the other way around, as this is seen as a measure to ensure that there are no disincentives to move onshore.

Trading exemption

As a result of the concerns raised in the consultation process, a trading exemption has been introduced. This will apply to indirect disposals where all, or most, of the UK property being sold is used in the course of a qualifying trade.

This is intended to cover interests in companies such as hotel businesses, which have UK property among their assets.

For a trade to be ‘qualifying’, it must have been carried on by the company owning the UK property, (or persons connected with that company) for at least a year prior to disposal. Also, there needs to be a reasonable expectation that the trade will continue after the disposal for more than an insignificant period.  Guidance states that an insignificant period is a matter of degree and should be taken to mean it is the intention of the buyer to continue to operate the trade.

This aligns the disposals of such companies with the substantial shareholding exemption and therefore maintains a level playing field.

We recommend that our clients who hold or plan to hold UK property, directly or indirectly, seek advice from their advisers as in some cases reorganisations are necessary; in others, we are looking to maximise available UK reliefs to mitigate UK tax charges on gains.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.