From April 2019, all types of non-UK resident investors who dispose of units in a collective investment vehicle (CIV) containing UK land are now potentially within the scope of UK tax.
However, any gain subject to tax will be limited to the increase in value which has accrued since April 2019 (or date of acquisition if later). Thus, such disposals will benefit from a form of rebasing.
For non-UK residents, this will bring within scope disposals of units in a UK Real Estate Investment Trust (REIT), or an equivalent non-resident CIV investing in UK land, unless the CIV meets the non-UK real estate condition and either the Genuine Diversity of Ownership condition or the ‘non-close’ condition (if it is a company).
Where a CIV meets these conditions, non-resident investors are exempt from reporting disposals of their units unless the relevant investor owns at least 25% of a CIV investing in UK land.
The non-UK real estate condition is met where no more than 40% of the value of the CIV’s investments consist of interests in UK land or ‘property rich’ companies.
Broadly, a CIV will meet the Genuine Diversity of Ownership condition if the fund is made widely available, and a company CIV will meet the non-close condition if the CIV is not controlled by five or fewer participators (with certain exceptions).
Where chargeable gains are realised by non-resident trustees or individuals, the applicable rate of capital gains tax (CGT) is 20%, unless the investor is a basic rate individual taxpayer, in which case the rate is 10%. Gains realised by a corporate entity are subject to corporation tax at the prevailing rate, currently 19%.
For non-resident trustees and individuals, the due date for reporting disposals is 30 days after the date of sale. This is also the due date for paying any tax liabilities. However, if the relevant individual/trustee is already within HMRC’s self-assessment system, payment can be deferred until 31 January following the year of disposal.
Companies subject to charge will need to register with HMRC for corporation tax purposes within three months following the chargeable disposal, and (subject to already being within the corporation tax system) will need to pay their liability to corporation tax within three months and 14 days following the disposal.
Finally, it is worth noting that such disposals will generally need to be reported regardless of whether a gain arises or where any gain is covered by relevant exemptions (i.e. the CGT exempt amount available for trustees and individuals).
Disposals of CIVs that do not substantially invest in UK land remain outside the scope of UK tax for non-resident investors.
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While portfolios tend to have only limited exposure to the UK property asset class, the potential tax liabilities, additional reporting requirements and the practicalities of identifying where a reporting requirement arises are key considerations going forward.
In light of these issues, the trustee will liaise with investment managers and advisers in respect of investment into UK property rich CIVs to ensure appropriateness according to each individual case.
Should you require any further information, please do not hesitate to contact your usual Nedgroup Trust relationship manager who would be happy to discuss the topic with you.
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