The Chancellor of the Exchequer, Philip Hammond, presented his Autumn Budget to Parliament on 22nd November 2017. One surprise announcement was the intention to bring UK commercial property gains made by non-residents within the charge to UK tax with effect from April 2019.

The Consultation document was released on the same day, setting out the main features of the proposals. The government's intention is to broaden the existing regime that applies to disposals of residential property to create a single capital gains tax regime for both UK commercial and residential property disposals by non-residents.

This briefing provides an overview of the measures proposed.

Direct Disposals of UK Real Estate

From April 2019, non-resident individuals and companies will be subject to capital gains tax on the disposal of UK commercial property. Currently, non-residents are only subject to UK tax on disposals of UK residential property.

Commercial property values will be rebased to April 2019, so that only the gain arising from that date will be chargeable to tax. There will be an option to calculate the gain (or loss) using the original acquisition cost, and this may be useful where a property is standing at a loss.


The tax rates for gains arising on direct disposals of commercial property will be the same as for residential property. For individuals, trustees and partnerships, the rate is 18% where the gain falls within the basic rate band, and 28% on the excess.


Where a company disposes of UK commercial property, the gain will be subject to UK corporation tax (currently 19%). This is the same rate that currently applies to residential property gains realised by non-resident companies not within the charge to ATED (Annual Tax on Enveloped Dwellings).

Companies (or other 'non-natural persons') that hold UK residential property within the charge to ATED are charged to ATED-CGT at 28%. The government is seeking views on how to harmonise ATED-CGT with the wider regime for taxing non-residents on UK property gains.

Collective Investment Schemes

At present, gains on disposals of UK residential property made by widely-held companies resident outside the UK are not subject to capital gains tax. From April 2019, disposals of all real estate made by non-resident funds will fall within the charge to corporation tax, but only on the portion of the gain arising after April 2019.

Persons currently exempt from capital gains tax, such as pension funds, will remain exempt from these new rules.


Under the new regime, losses realised on residential property can be offset against gains on commercial property and vice versa. Group relief will be available for losses realised by a group company.

Indirect Disposals of UK Real Estate

An indirect disposal is a disposal of an interest in an entity that holds UK real estate (whether commercial or residential property). This will include a disposal of shares in a company (or holding company) that owns UK real estate, an interest in a partnership or an interest in settled property deriving its value from UK land.

For there to be an indirect disposal of immovable property, two conditions need to be satisfied:

  1. The entity must be 'property rich' (broadly, where 75% or more of its gross asset value at disposal is represented by UK real estate). The 75% test is solely based on the assets of the company and is not reduced by liabilities.
  2. The non-resident must hold an interest of 25% or more in the entity at the date of disposal, or at any point within the previous five years. When considering whether the 25% limit is met, interests held by related parties at any point within the previous five years are taken into account. The term 'related party' will be widely defined to include relatives and other persons coming together as a group to invest.

The value of the interest in the entity (e.g. the shares), rather than the property itself, will be rebased to April 2019 so that the gain is calculated by reference to the increase in value of the interest in the real estate entity rather than by reference to the increase in the value of the real estate itself.

This rebasing to April 2019 will be the only calculation method for indirect disposals of property rich entities. There will be no option to calculate the gain on a time apportioned basis. It will therefore be important to obtain a valuation of all indirect interests in UK real estate as at April 2019.

Disposals by non-residents of interests in UK funds (REITs, PAIFs and EUUTs) will come within the scope of UK capital gains tax from April 2019, provided the property rich and ownership threshold tests are met.

Tax Treaties

Some tax treaties override the UK's domestic taxing rights on disposals of UK property (e.g. where held in an overseas partnership or where gains realised on the disposal of shares of UK property holding companies are taxed only in the country of residence). To prevent the use of double tax treaties ('treaty shopping') to avoid a charge to UK tax, anti-forestalling measures will be introduced to prevent arrangements being entered into on or after 22 November 2017 that involve the abuse of a double tax treaty to circumvent the rules.

The government also plans to re-negotiate treaties so that the UK's taxing rights are preserved on disposals involving UK land.


UK advisers who are aware that a disposal of an interest in UK property has taken place will be required to report the transaction to HMRC, unless the adviser has proof that the transaction has already been reported.

What now?

The Consultation closes on 16 February 2018 and draft legislation is expected in late summer 2018. We are not expecting significant changes after the Consultation has ended, as the government has made it clear that some aspects of the changes are fixed, such as the scope, commencement date and core features of the direct and indirect disposal provisions.

Non-residents who currently own UK real estate through structures should take professional advice to ensure that they understand the impact of the proposals, as well as potential investors considering acquisitions of UK real estate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.