LONDON: It would seem relatively simple for a non-UK resident to avoid a tax liability on the disposal of UK property by purchasing properties in individual corporate wrappers and then selling the wrapper instead of selling the property. But disposals of interests in such entities that derive their value predominantly from UK land are also being brought within the tax cordon.
The Chancellor has sought to prevent tax liabilities being circumvented in this way by introducing a further tax liability where a person with a 25% interest (either at the time of the disposal or within the previous five years and taking account of interests held by related parties) in the company disposes of some or all of his shareholding where the company is “property rich” (in other words, where 75% or more of its gross assets are represented by UK property).
It is intended that non-UK residents will be taxed only on gains attributable to the increase in value of UK property from April 2019. Further clarification of how this principle will be achieved in the context of indirect disposals is required. For example, it is not clear how increases in the value of a shareholding in a property rich company that is derived from other non-property assets or non-UK assets will be dealt with. It appears at first sight that non-UK residents could be liable for UK tax on the disposal of a shareholding as a result of an increase in the value of non-UK property even where the value of UK property has remained unchanged.
It follows that it will not be possible for a non-UK resident to avoid the tax liability simply by establishing a single asset company and then selling shares in the company.
However, if the company also owns non-UK property or other non-property related assets, a sale of shares in the company may not trigger a UK tax liability notwithstanding that it may also own UK property if UK property represents less than 75% of its assets. It remains to be seen whether all non-property assets are taken into account for these purposes and thus whether a liability would arise where a non-UK resident owner of a company that owns three UK properties of equal value and which has sold one of those properties (which would be subject to the tax charge) sells its shareholding at a time when the sale proceeds are retained within the company (and represent more than one-third of the value of the remaining two properties).