Form of Taxation
Although not news, there is confirmation and draft legislation supporting the move for non-UK resident companies from income tax (at a rate of 20%) to corporation tax (at 17%) in respect of their UK property income from April 2020. Further guidance on the transitional measures to facilitate this change are expected in 2019.
Similarly, there is confirmation that non-UK resident companies will be subject to corporation tax (not CGT) in respect of UK property sales from April 2019. More details are expected in November.
A significant change for investors in UK property announced at the Budget are the changes to capital allowances (tax depreciation).
A new allowance, “Structures and Buildings Allowance”, will be given on all expenditure on non-residential building expenditure incurred under contracts entered into after Budget Day (29 October 2018). This allowance will be given at a rate of 2% per annum on a straight line basis. It does not include the cost of the land on which the building is sited. This is great news for owners of commercial property in the UK who wish to enhance the value of their asset, whether they wish to use it in their own business or lease this out.
This is partly offset by a reduction in Special Rate Allowances, which includes fixtures in a building. This is reduced from 8% to 6% per annum on a reducing balance basis.
There is also a temporary increase in the Annual Investment Allowance from £200,000 to £1 million for 2 years. This means that capital expenditure up to this amount can be immediately written off against taxable profits. This is excellent news for anyone planning a significant investment in the fixed assets of a UK business in any sector, including property.
There are some other changes, mostly affecting specialist energy saving assets which may no longer qualify for enhanced capital allowances.
Private Residence Relief
Whilst the Chancellor committed to preserving the relief that prevents capital gains tax applying on the sale of an individual’s principal private residence, he did announce 2 changes that will have a disproportionate impact on internationally mobile employees.
When a person leaves their UK residence, currently PRR continues to exempt that property from CGT provided that it is sold within 18 months of departure. This period will now be reduced to 9 months.
Where a person moves out of their UK home and lets it out, PRR continues to reduce (or exempt) from CGT this period of absence through a specific “lettings relief”. This relief will no longer apply.
Stamp Duty Land Tax
The Chancellor has also announced a Consultation on increasing SDLT charges on the purchases of UK property by non-residents by 1%. The Consultation is expected to be launched in January 2019 and it will be interesting to see how this develops.
One measure that will not affect Guernsey residents, but will level the playing field, is a proposal to make UK residents selling property, on which CGT is payable, liable to make a return and payment on account within 30 days of sale. This is similar to the rule that currently applies to non-residents making such a sale.
For further information, contact a member of BDO’s tax team.