Changes to Capital Gains Tax from April 2019

Changes to Capital Gains Tax from April 2019


The change is currently proposed to apply to gains arising on or after April 2019. The intention is to align the UK with most other countries who also apply these rules and remove an advantage which non-residents have over UK residents by bringing all gains on non-resident disposals of UK property within the scope of UK tax.

Current Position

Capital gains tax (CGT) and corporation tax were historically only charged on disposals by UK residents but expanded in 2015 to also include disposals of UK residential property owned by non-UK residents. A consultation, announced during the 2017 Budget and ending earlier this year, proposed extending the regime to disposals of any UK property owned by non-residents. The purported aim of such proposals was to both simplify the existing rules, whilst also making a more level playing field between investments in UK land by UK residents and non-UK residents.

The responses to the consultation and draft legislation were published on 6 July 2018 and it is anticipated that any changes will take effect from April 2019.

Proposed new CGT charges

There are two new charges:

Disposal of UK commercial property by non-UK residents

CGT for non-UK residents currently only applies to disposals of UK residential property held by non-widely held companies. CGT will be extended to apply to disposals of any UK property, i.e. including commercial property and residential property owned by widely-held non-UK resident companies (for example certain funds).

Disposal of shares in property rich companies

CGT will also be imposed on the sale of shares of companies whose assets consist of, to a substantial extent, UK real estate (either residential or commercial). Despite the introduction of non-resident CGT to disposals of UK residential property in 2015, the disposal of shares in property holding companies remained a safe haven. This will no longer be the case from April 2019, when the new rules will apply if:

  • the company is property rich (i.e. if 75% or more of its value derives from UK property). The disposal could be of the company which directly owns the UK property, or a parent or holding company of a subsidiary holding UK property. Where more than one company is sold, complicated rules apply to work out whether, in aggregate, 75% of the value of the companies derives from UK property; and
  • the non-resident (and related partners) hold, or at some point in the previous two years have held, at least a 25% interest in the company. 

Responses to the consultation expressing concern about the cliff-edge-nature of the 75% property richness test, and the risk of an entity straying in and out of the 75% criterion have been downplayed by the government, who state that the 75% test mirrors the provisions in international treaties.

The government also agreed to reduce the time period looked at in respect of the 25% interest criterion from five years, down to two years, which should lessen the administrative burden of the new rules.

Summary Table

Type of sale by non-resident    Current position     Position post April 2019

Sales of UK residential property 

Gains arising after April 2015 subject to CGT for closely-held companies

Charge extended to widely-held companies 

Sales of UK commercial property 

 Not currently taxed

Gains arising after April 2019 will be subject to CGT

Sales of shares in property holding companies                                  

Not currently taxed

Gains arising after April 2019 will be subject to CGT if company is property-rich and interest exceeds 25%

Re-basing opportunity   

As was the case with the introduction of non-resident CGT for residential property, the acquisition cost of assets affected by the changes (both the direct and indirect charges) will be re-based to the value on the date on which the changes come into force (i.e. April 2019). Alongside this provision the new rules provide that:

  • a taxpayer can elect not to re-base, which might be helpful where, for example, property goes down in value;
  • if the impact of the election is to create a loss, that loss will not become an allowable loss; and
  • non-UK resident companies which subsequently become UK resident may still re-base. The same will not apply the other way around, as this is seen as a measure to ensure that on-shoring is not de-incentivised.

Anti-forestalling measures are introduced from 22 November 2017 (when the proposals were first announced) and a targeted anti-avoidance rule aims to prevent any perceived structuring around the new rules.

If you would like to discuss any of these matters or talk to us about your tax affairs in general, please contact our Tax Partners, Steve Crompton or Chris Barrington, on the details below:

Steve Crompton 
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394

Chris Barrington
Tax Partner
direct dial: 01942 292505
mobile: 07730 436070