In the middle of London’s glorious heatwave and on the eve of England’s next World Cup challenge against Sweden, the Finance Bill has finally been published. 

Not content with only publishing new legislation on taxing gains by non-residents on UK property, surprisingly the Government have also taken the opportunity to re-write existing CGT legislation and “consolidate” changes made since 1992. No wonder the wait was so long!

While this makes the Bill lengthy, the final result appears to be welcome simplification of the law, reversing a recent trend of tweaks leading to ever-increasing complexity.

Some key highlights on the CGT changes:

  • The welcome abolition of ATED-related CGT
  • A “trading exemption” – land used for trading purposes will be excluded in determining whether an entity is “property rich”. Good news for land-rich traders, such as retailers, hotels, utility companies and infrastructure entities
  • Existing reliefs, such as SSE and the no-gain/no loss rules will apply to non-residents
  • The 5 year look-back ownership test has been shortened to a 2 year look-back, to simplify the position for the benefit of smaller investors
  • No reporting requirement for third party advisors
  • Option to elect to use historic cost (rather than rebasing) for both direct and indirect assets
  • Simplification of the ‘acting together rules’ for the benefit of smaller investors, meaning that interests will only be aggregated where companies are connected or for individuals where they are otherwise connected (eg spouses)
  • Nasty matching rules are introduced, primarily to ensure that intercompany receivables aren’t used to boost non-UK land assets and bring land-rich percentage below 75%
  • No concession to look at effective control through chains of entities – so the sale of a wholly-owned PropCo may be caught, whereas a sale of an ultimate group holding company without a 25% stakeholder might not be, meaning sales of individual companies vs portfolios could be treated differently

The Government has also proposed special rules for collective investment vehicles, to include:

  • An option for non-resident investors to elect for transparent funds (such as Jersey Property Unit Trusts) to be treated as transparent (they will default to opaque).
  • A potential exemption for offshore funds, provided they are not close and agree to abide by certain reporting requirements. These are still subject to further consultation, so there is still a significant element of uncertainty, despite being only nine months away from the new rules coming into force.

Other changes include:

  • Confirmation that NRLs companies will be subject to corporation tax (rather than income tax) from 6 April 2020. While expected, the timing will be frustrating for many corporate NRLs, which submit their tax returns on the basis of their results to 31 March, as they will have a five day period to report under income tax rules before the corporation tax rules kick in. We believe there should be the option of an election to bring forward the start-date of corporation tax to 1 April 2020 to avoid this anomaly.
  • Also confirmed is the reduced window for filing stamp duty land tax (SDLT) returns and paying SDLT. As expected, the deadline is reduced from 30 to 14 days from the effective date of the transaction.
  • The reporting window for capital gains tax disposals for non-residents or for non-corporate UK residents disposing of residential property not qualifying for principal private residence relief will be reduced to 30 days, with a payment on account of the CGT due within the 30 day reporting window.
  • The Government confirms that it is “in discussion with Luxembourg” regarding the UK-Luxembourg treaty and it will pursue inclusion of a the land-rich clause in the Treaty allowing it to benefit from the right to tax gains

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