During the Autumn Budget 2018, Her Majesty's Revenue and Customs (HMRC) introduced measures affecting non-UK residents and how they are taxed on the disposal of both commercial and residential UK real estate. The measures will see non-UK residents taxed on their gains on disposal of any type of UK land, impacting all direct and indirect disposals made on or after the April 6, 2019.
This will also affect all property investors and investment funds who effect a disposal of UK property investments on or after April 6, 2019.
HMRC have provided two options to calculate the potential gain or loss on disposal, either by deriving the (market) value of the asset as at April 5, 2019; or by adopting the original acquisition cost. This is designed to protect historic gains, i.e. investors that have held assets since before April 2019 will only be subject to tax on a disposal to the extent their asset has increased in value since April 2019.
Electing to use the original acquisition cost would only be worthwhile where a smaller gain or larger allowable loss were to be achieved. However, where the original cost basis is used to calculate an indirect disposal, any resulting loss will not be an allowable loss.
Duff & Phelps’ Real Estate Advisory Group (REAG) in conjunction with the firm’s Tax Advisory team offers a breadth of expertise to support clients’ needs in the upcoming adjustments.
Mark Whittingham, Managing Director of Duff & Phelps’ Real Estate valuation team in London, said “These measures are a significant consideration for all non-UK residents disposing of UK land, or of interests in entities holding UK land. We have recently been engaged by a number of clients to value their real estate assets as at April 2019 to ensure they are taxed on the uplift in value from April 2019 only, and not on the historical unrealized gains. Having a valuation as at April 2019 means that investors will only pay tax on the gain since April 2019, and not when they acquired the asset. The saving could be significant, particularly where there has been a material uplift in value in the period from the original acquisition to April 2019, and where the future disposal price is expected to exceed the current value. REAG’s expertise in financial and tax reporting, and our understanding of HMRC's specific valuation requirements, means we are well placed to advise our clients on the impact and mitigation of these measures and can meet HMRC's needs in a cost effective manner. Advising on regulatory developments such as these are exactly what sets us apart”.
Clients are urged to investigate how they could potentially qualify for existing reliefs and exemptions, and, importantly, how to remain qualified. Notwithstanding there is a requirement for robust fund and property valuation as well as financial reporting proficiency, all of which can be provided by Duff & Phelps. Ultimately the team ensures to optimize on clients’ unique attributes and to provide robust, market-facing values by working closely with the property asset managers to ensure that all initiatives are fully captured and reflected.