Extension of CGT to non-residents holding UK real estate

23 November 2017

In a major change to the taxation of UK real estate the Government announced yesterday that from April 2019 non-residents holding UK real estate will be subject to UK tax on their gains.

UK CGT has already been extended to certain non-residents holding residential property in recent years, however this new extension will bring almost all non-resident owners of UK land within the scope of UK tax on their gains, and will remove a key tax benefit currently enjoyed by non-UK investors in real estate.

Key points from yesterday’s announcement:

  • The new regime is subject to consultation and so much of the scope and detail is as yet uncertain. However the Government has said that the core aspects are fixed, including the date from which the new rules will apply, April 2019.
  • Only increases in value arising after this date will be subject to tax, so historic gains will be protected and investors that have held assets since before this date will only be subject to tax on a disposal to the extent their asset has increased in value since April 2019. Non-resident companies and unit trusts will be taxed at the corporation tax rate (currently 19 per cent) while individuals and other entities will be taxed at capital gains tax rates (currently 20 per cent for higher and additional rate taxpayers).
  • Non-UK entities that are currently outside the scope of UK CGT on residential property gains, by virtue of being widely held (for example certain funds), will be subject to tax on all gains realised on their UK property assets under the new regime.
  • The new rules will apply to certain sales of interests in “property rich” vehicles, as well as to sales of real estate assets themselves. A property rich vehicle is one that ultimately derives at least 75 per cent of its gross asset value from UK real estate, and gains on a disposal will be chargeable where the person making the disposal holds (or has held in the last five years) a 25 per cent or greater interest in the vehicle.
  • Even with this extension of capital gains tax investors may still prefer to structure their exit as the sale of the vehicle holding the asset, as this will offer the buyer a Stamp Duty Land Tax saving. It is also worth noting that the recent widening of the Substantial Shareholding Exemption, a relief from UK corporation tax on gains for the disposal of shares in certain companies, may also benefit certain non-UK institutional investors holding UK land through companies. Overseas pension schemes will continue to be exempt from UK CGT on disposals of real estate and interests in property rich vehicles.
  • Certain of the UK’s tax treaties preclude the UK from taxing gains realised by non-residents on sales of interests in vehicles holding UK land, subject in some cases to certain conditions being met. The treaties will “trump” domestic legislation so investors based in these jurisdictions may escape the new regime. However the new regime will include anti-avoidance measures designed to counteract attempts to restructure property holdings after yesterday’s announcement, in a way that takes advantage of favourable tax treaties.
  • The new rules only apply to investors in UK real estate, and the existing regime for developers and traders (including the Transactions in UK Land rules introduced in 2016) should not be affected. The Government is proposing to “harmonise” the new rules with the existing regimes for non-resident CGT and ATED-related CGT on disposals by non-residents of residential properties. As both of these regimes are complex, any streamlining of the rules will be welcome.


After the extension of UK CGT to most non-resident owners of residential property in 2015, many feared that the obvious next step for the Government would be to extend CGT to all non-UK owners of commercial property. This will bring the UK in line with many other jurisdictions’ property tax regimes, however it will also remove one of the most attractive features of UK real estate for non-UK investors, and with around 28 per cent of the UK’s investment grade commercial property held by non-residents this will inevitably have an impact on the market.