If you are Manx resident and own UK land or property (residential or commercial) either directly or via a company/entity then you are affected:
On 6 July HMRC issued draft legislation with the intention of extending the scope of corporation tax and CGT to include gains on disposals of interests in commercial property (non-residential UK property) as well as decreasing the CGT payment window for residential property gains. There will now be a period of technical consultation before the legislation is finalised for a future Finance Bill likely to be effective from April 2019.
HMRC have stated that the aim of the new rules is to level the playing field between UK residents and non-UK residents on disposals of UK immovable property.
The measure was originally announced at Autumn Budget 2017, was consulted on from November 2017 to February 2018 and will become effective for disposals made on or after 6 April 2019.
This proposal is expected to affect:
- non-resident individuals and trusts, who will pay CGT for direct disposals of UK non-residential property for the first time; and
- non-resident individuals and trusts, who will pay CGT on gains for indirect disposals for the first time
These individuals and trusts are expected to incur one-off costs of familiarisation with the new rules perhaps mainly relating to obtaining valuations of property.
Most if not all Isle of Man and non-UK resident companies will be charged to Corporation Tax rather than Capital Gains Tax on their gains. Corporation tax will also likely apply rather than UK company income tax in the future. Whilst corporation tax rates are heading down (17% by April 2020) compared with the 20% UK company income tax rate, interest relief may be restricted. We await more details.
All Isle of Man and non-UK resident persons will also be taxable on indirect disposals of UK land under the new section 1A (3) (c). The indirect disposal rules will apply where a person makes a disposal of an entity that derives 75% or more of its gross asset value from UK land. There will be an exemption for investors in such entities that hold a less than 25% interest. The gains on indirect disposals will be calculated using the value of the asset being disposed of, rather than the value of the underlying UK land.
HMRC has also published draft legislation requiring individuals and trustees disposing of a residential property to make a payment on account of the CGT within 30 days of the completion of the sale. Sellers will have to calculate, report and pay the CGT that they believe is due within that window.
For UK residents, the measure will have effect for disposals made on or after 6 April 2020. For non-UK residents changes have effect for disposals on or after 6 April 2019.
The measure also extends the charge on gains on disposals of interests in residential property to diversely held companies and to life assurance companies.
The provisions relating to ATED-related Capital Gains Tax will be abolished.
Harding Lewis commentary:
This is draft legislation only. Any Isle of Man resident who has an interest in UK land and property whether directly or via a company or Trust, will need to be aware of CGT changes proposed and be alert to the legislation when it is finalised. It is likely that property valuations will be needed especially if CGT is to be based on future gains. We recommend that advice is sought before taking any action.
There are clearly a lot of unanswered questions at this stage, for example with regard to the CGT reporting mechanism to HMRC for selling shares in an Isle of Man company with significant UK property interests. However, these matters should become clear in due course.