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Non-residents’ gains on UK property and collective investment schemes

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Finance Bill 2019 contains legislation extending the taxation of gains made by non-residents on UK immovable property to include commercial property and indirect disposals by ‘property rich’ entities, with effect from April 2019. The existing ATED-related CGT provisions will be abolished. HMRC has now published a technical note covering the specific application of the new rules to certain collective investment vehicles.

The technical note builds on the outline contained in the annex to the consultation response document Taxing gains made by non-residents on UK immovable property, published on 6 July, which proposed a framework for application of the rules to collective investment vehicles and those investing in such vehicles.

The responses highlighted concerns about the impact on investment in UK real estate if, under the proposed rules, currently exempt investors were left exposed to tax at lower tiers of investment. Many felt investors in collective investment vehicles were likely to suffer multiple tax charges on the same disposal due to the structures used and commercial practice in this area.

The technical note sets out two elections, designed to address the key issues identified in the consultation and multiple charges at different tiers in funds:

  • a transparency election to treat the offshore vehicle as a partnership for the purposes of capital gains; and
  • an exemption election under which the vehicle remains a person and notionally chargeable to tax on its gains.

The note says there are instances in which either election would be suitable, but in most cases the circumstances will define which approach is appropriate.